Earlier this week, the US Supreme Court again invoked the federal policy of enforcing arbitration agreements. The Court reversed a Kentucky state court opinion holding that an arbitration agreement is unenforceable if it is signed by an individual with power of attorney, unless the power of attorney expressly authorizes waiver of the right to a jury trial.
In Kindred Nursing Centers LP v. Clark, two individuals who had power of attorney for their elderly relatives signed paperwork to move the relatives into a nursing home. The paperwork included an agreement to arbitrate any disputes. When the relatives later sued claiming substandard care, the nursing home moved to dismiss, citing the arbitration clause. The Kentucky Supreme Court observed that the state constitution declares the right of access to the court and trial by jury to be “sacred” and “inviolate.” On that basis, the Kentucky court held that an agent – in this case, a person with a power of attorney – cannot deprive her principal of such rights unless it is expressly so provided in the power of attorney.
On review, Justice Kagan, writing for the majority, stated that the Federal Arbitration Act (FAA) requires courts to place arbitration agreements on an equal footing with all other contracts. Regardless of whether access to court and right to trial by jury are given special status by the state constitution, the Kentucky court’s ruling would impermissibly put arbitration agreements on a different footing than other contracts entered into pursuant to a power of attorney. On that basis, the lower court’s holding was reversed.
The Oregon Court of Appeals last week reinforced the broad scope of Oregon's law stating that "mediation communications" are inadmissible in subsequent proceedings.
In Yoshida's Inc. v. Dunn Carney Allen Higgins & Tongue, the issue was whether emails related to a mediation could be admitted into evidence in a separate legal malpractice case. The client in the malpractice case contended that the defendant lawyer had failed to provide a timely notice to terminate an equipment and software lease, resulting in an automatic renewal of the lease. The client hired a different lawyer to resolve the matter with the lessor, and in a mediation the client agreed to pay a sum of money to terminate the lease and purchase the equipment and software from the lessor. In the trial of the subsequent malpractice case, the trial court admitted into evidence emails associated with the mediation. Defendant lawyer contended that the emails showed that the client suffered no damages as a result of the alleged negligence. A jury entered a verdict in favor of the defendant lawyer.
The Court of Appeals held that it was reversible error to admit the emails. ORS 36.222 states that "mediation communications" -- meaning all communications make in the course of or in connection with a mediation -- are not admissible in any subsequent proceeding, and on that basis the trial court had erred.
If parties involved in an arbitration agree to resolve only the issue of liability, may the arbitrator issue an order determining not only liability but the appropriate remedies as well? According to the Oregon Court of Appeals, the answer is yes, as long as the parties don't waive the statute that gives the arbitrator broad authority to order remedies.
In Couch Investments, LLC v. Peverieri, a landlord and tenant submitted to an arbitrator a dispute regarding allocation of responsibility for the cost of improvements to the property. The agreement to arbitrate stated that liability was "the only issue to be resolved." Notwithstanding the agreement, the arbitrator decided liability and also issued an order setting out a process for completion of the improvements. The landlord objected that the remedies were outside of the parties' agreement.
ORS 36.695(3) states that "an arbitrator may order such remedies as the arbitrator considers just and appropriate under the circumstances." According to the Court of Appeals, that statute acts as a default to grant arbitrators broad authority to order remedies. If the parties do not express an intent to waive the statute, the arbitrator may properly order remedies. Accordingly, the Court of Appeals affirmed a judgment in the form of the arbitration award.
The U.S. Supreme Court yesterday enforced an arbitration agreement prohibiting class arbitration of antitrust claims, even though the plaintiffs showed that it was uneconomical for them each to pursue claims individually.
In American Express v. Italian Colors Restaurant, a group of merchants claimed that the terms of their agreement to accept American Express cards violated the antitrust laws. The same agreement required arbitration of claims, but prevented the merchants from pursuing class arbitration. The merchants nonetheless sought to pursue class arbitration of the antitrust claims, arguing that the cost of expert analysis necessary to prove the claims would greatly exceed the maximum recovery for an individual plaintiff. The merchants pointed to the 'effective vindication' rule: an arbitration clause will not be enforced if it prevents the effective vindication of federal statutory rights.
Writing for the majority, Justice Scalia stated that the effective vindication rule addresses only whether the plaintiff retains the right to pursue a remedy, not whether it is cost-effective to do so. Here, because plaintiffs did not give up their right to pursue a remedy under the antitrust law when they signed the contract with American Express, the prohibition on class arbitration was enforceable. A dissent written by Justice Kagan criticized the majority for concluding, in effect, that a "monopolist gets to use its monopoly power to insist on a contract effectively depriving its victims of all legal recourse."
This week the U.S. Supreme Court again affirmed the broad scope of the Federal Arbitration Act, holding that when a contract includes a valid arbitration provision, an arbitrator, and not a court, should decide in the first instance whether the contract is valid under state law.
In Nitro-Lift Technologies, LLC v. Howard, an employer sought to enforce an employee non-competition agreement containing an arbitration clause. Two employees subject to the agreement asked the Oklahoma state court to hold that it was void under state law. While the employer argued that the contract's enforceability should be decided by an arbitrator in the first instance, the Oklahoma Supreme Court refused to send the issue to an arbitrator and held that the noncompetition agreement was "void and unenforceable as contrary to Oklahoma's public policy."
On review, the U.S. Supreme Court rebuked the Oklahoma court for displaying the type of "judicial hostility toward arbitration" that is foreclosed by the FAA. The Oklahoma court ignored longstanding precedent establishing that attacks on the validity of the contract as a whole, as distinct from attacks directed to the validity of the arbitration clause, must be resolved by the arbitrator.
Last week, the Oregon Court of Appeals upheld the dismissal of an employee’s age discrimination claim under state law for failure to comply with the employer’s grievance and arbitration procedure. In Hatkoff v. Portland Adventist Medical Center, the employee had signed a written acknowledgement that he had received the employee handbook and was responsible for reading it and understanding its contents. The acknowledgement also stated that in the event he was dissatisfied with any action taken by his employer, the employee would submit the matter to the employer's grievance and arbitration procedures.
For employers that have a written grievance or other alternative dispute resolution procedure in their handbook, the case opens the door for a complete defense to a claim by an employee who fails to follow the procedure.
Last week, in a 5-4 decision, the United States Supreme Court strengthened the Federal Arbitration Act (FAA) by enforcing a term in a consumer contract that provided for arbitration of all disputes, but prohibited classwide arbitration.
In AT&T Mobility LLC v. Concepcion, Mr. and Mrs. Concepcion entered into a contract for sale and service of cell phones with AT&T Mobility. The contract provided for arbitration of all disputes, but required that any claims be brought in a party's individual capacity, and not as a class member. The Concepcions later sought to participate in a class action lawsuit claiming false advertising and fraud by AT&T. They claimed that the arbitration clause was unenforceable under Calfornia law because the waiver of classwide proceedings was unconscionable.
The Supreme Court, reversing the Ninth Circuit, agreed with AT&T that California's test for invaildating waivers of classwide arbitration stands as an obstacle to the purpose of the FAA. For that reason, state law can't be used to invalidate such a clause as unconscionable. The Court refused to apply state law even though the FAA expressly provides that arbitration agreements may be invalidated on grounds existing under state law.
This result apparently voids similar cases applying Oregon and Washington law, in which waivers of class arbitration have been found to be unconscionable. See our coverage of those cases here and here.
The U.S. Supreme Court yesterday limited the role of courts in interpreting and enforcing arbitration agreements under the Federal Arbitration Act. At issue in Rent-A-Center West, Inc. v. Jackson was an arbitration agreement that Jackson signed as a condition of his employment with Rent-A-Center. When Jackson filed an employment discrimination lawsuit, the employer sought to dismiss based on the agreement. Jackson argued that the agreement was unconscionable and unenforceable. The agreement specifically provided that the arbitrator would determine the enforceability of the agreement.
In a 5-4 decision, the Supreme Court held that, because Jackson challenged the enforceability of the agreement as a whole, the challenge had to be resolved by an arbitrator. But if Jackson had challenged just the portion of the agreement stating that the arbitrator would determine the enforceability of the agreement, the issue would properly be resolved by a court.
Today the U.S. Supreme Court held that the Federal Arbitration Act (FAA) does not require class arbitration unless the parties' arbitration agreement expressly provides for class arbitration.
In Stolt-Nielsen, S.A. v. AnimalFeeds Int'l Inc., AnimalFeeds claimed that Stolt-Nielsen violated the antitrust laws by charging supracompetitive prices. The parties' agreement provided for arbitration of all disputes arising from the contract. AnimalFeeds initiated an arbitration claim on behalf of a class of purchasers, and Stolt-Nielsen disputed that class arbitration was available under the contract. While the arbitration clause was silent on the issue of class arbitration, the arbitration panel determined that it was appropriate to proceed with a class arbitration, and the Second Circuit agreed.
The Supreme Court reversed, holding that, because the parties did not expressly agree to arbitration of claims by a class of claimants, class arbitration was not available. According to Justice Alito, writing for the majority, despite the FAA's policy favoring arbitration of disputes, "a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the parties agreed to do so."
The Oregon Court of Appeals has again enforced an arbitration clause in an employment contract, rejecting the employee's claim that the clause is unconscionable. In Livingston v. Metropolitan Pediatrics, LLC, the plaintiff, a pediatrician, took issue with the conduct of his employer and other doctor members and employees related to an investigation of the clinic's child vaccine program. He alleged he was ultimately terminated because of the concerns he expressed to his employer and government authorities.
Plaintiff filed common law and statutory employment claims against his employer and the others in court. The employer moved to abate the claims and compel arbitration, citing a clause in the employment agreement that required arbitration of "[a]ny controversy, dispute or disagreement arising out of or relating to this Agreement, or the breach thereof." The trial court denied the employer's motion, ruling that the arbitration clause is "unconscionable" and, therefore, unenforceable. The employer appealed, and the Court of Appeals last week agreed with the employer and sent the case back for arbitration of all claims.
The test for "unconscionability" in Oregon has two parts, one procedural and the other substantive. A contract is procedurally unconscionable, and therefore not enforceable, if there is "oppression" or "surprise" in the "conditions of contract formation," but unequal bargaining power alone is insufficient for a finding of procedural unconscionability. A contract is substantively unconscionable if the "terms" of the contract are "unreasonably" one-sided, such that their "effect" makes the parties' respective obligations "so unbalanced as to be unconscionable."
In this case, Plaintiff did not contend that the agreement was procedurally unconscionable; the Court of Appeals noted that, in any event, because plaintiff is a highly educated physician, any inequality in bargaining power was minimal. The trial court, however, had found these aspects of the agreement substantively unconscionable: (1) the possibility that plaintiff would have to pay defendant's attorney fees and costs if plaintiff is unsuccessful on his "blacklisting" claim; (2) excessive arbitration fees assessed against plaintiff; (3) ambiguity about which set of American Arbitration Association rules would govern the arbitration; and (4) a requirement of confidentiality. Before the Court of Appeals, plaintiff asserted these and other grounds for a finding of unconscionability and further argued that the arbitration clause should not apply to intentional torts, statutory claims, and claims against non-signatories to the employment agreement. The Court of Appeals addressed the trial court's findings as well as the other arguments put forth by plaintiff, and held that none of the concerns arises to the level of substantive unconscionability or otherwise requires court litigation of the parties' disputes. Central to the ruling of the Court of Appeals is the very broad language of the arbitration clause allowing for arbitration of "any controversy, dispute or disagreement."