Case Law Update

Neither FAA nor NLRA Precludes Enforcement of Arbitration Clause

In Epic Sys. Corp. v. Lewis, 138 S. Ct. 1612 (2018), the United States Supreme Court determined that neither the Federal Arbitration Act’s savings clause nor the National Labor Relations Act precludes the enforcement of an arbitration clause, even when that arbitration clause excludes the possibility of class or collective actions for alleged violations of the Fair Labor Standards Act.

The plaintiffs in the underlying cases had argued that the NLRA’s protections of “concerted activity” should be read to include collective and class actions. The Court, however, rejected the notion that the NLRA’s provisions conflict with the FAA’s protections, noting the statutory context in which the NLRA’s language appears. Instead, the Court held, the NLRA’s protections target organizing and other union activities, leaving employees free to bargain collectively for a dispute resolution processes that do (or do not) include individualized arbitration.

Writing for the majority, Justice Neil Gorsuch wrote, “The policy may be debatable but the law is clear: Congress has instructed that arbitration agreements like those before us must be enforced as written. While Congress is of course always free to amend this judgment, we see nothing suggesting it did so in the NLRA – much less that it manifested a clear intention to displace the Arbitration Act.”

Justice Ruth Bader Ginsburg’s dissent, in which three other justices joined, views the NLRA’s protections as extending beyond organization and collective bargaining to include “concerted activities for the purpose of mutual aid or protection,” including “joining hands in litigation [to] spread the costs of litigation and reduce the risk of employer retaliation.” The dissent, therefore, would treat an arbitration clause insisting on individualized actions as unfair labor practices, inconsistent with and preempted by the NLRA.

Court Finds Arbitrator’s Failure to Disclose is Cause for Vacating Award

In Honeycutt v. J.P. Morgan Chase Back N.A., 2018 Cal. App. 679, the court vacated an arbitration award because the arbitrator had failed to disclose upcoming arbitrations with one of the parties, an omission that might have been grounds to disqualify the arbitrator under California’s Code of Civil Procedure. The arbitrator’s disclosure worksheet contained answers to a questionnaire about whether the arbitrator would “entertain offers of employment or new professional relationships in any capacity other than as a lawyer, expert witness, or consultant from a party or a lawyer for a party, including offers to serve as a dispute resolution neutral in another case.” The arbitrator answered “yes” to the question regarding entertainment of offers employment, but the page on which this disclosure appeared was never sent to Honeycutt.

Two years after the appointment of the arbitrator, Honeycutt discovered that the arbitrator was appointed to serve on eight other arbitration cases involving Chase. Honeycutt then moved to disqualify the arbitrator, but the American Arbitration Association, which was administering the case, declined to disqualify the arbitrator. Following an award in favor of Chase, Honeycutt sought vacatur on the grounds that arbitrators have “a continuing [disclosure] duty, applying from service of the notice of the arbitrator’s proposed nomination or appointment until the conclusion of the arbitration proceeding,” according to the California Ethics Standards. The California Court of Appeal held that the arbitrator’s failure to disclose breached this continuing duty and it, therefore, vacated the arbitral award.  

Fraudulent Inducement is Reason to Decline to Implement Agreement, Nebraska Supreme Court Holds

In Cullinane v. Beverly Enterprises-Neb. Inc, 300 Neb. 210 (2018), the Nebraska Supreme Court declined to enforce an arbitration agreement in a wrongful death claim against an assisted living facility. In 2015, Helen and Eugene Cullinane were admitted as residents in Golden Living Center-Valhaven (GLCV) in 2015. During the admission process, Eugene Cullinane signed a number of documents on his own behalf and on behalf of his wife. These included an “Alternative Dispute Resolution Agreement” (ADR Agreement). Helen Cullinane died in 2015, and her son, as the special administrator of her estate, subsequently filed a wrongful death action against GLCV. GLCV moved to compel arbitration, pointing to the ADR Agreement’s provisions.

The son argued that the arbitration agreement had been fraudulently induced, having been presented as a precondition to admission to the facility. GLCV pointed to the specific language in the ADR Agreement: “This agreement is not a condition of admission to or continued residence in the facility,” as well as language under a section titled “Resident’s Understanding”: “The Resident understands that . . . his or her signing of this Agreement is not a condition of admission to or residence in the Facility . . . .” GLCV further argued that company policy was to assure that prospective residents knew the ADR Agreement to be optional.

The district court for Douglas County found the plaintiffs’ proffered evidence more persuasive and sided with the son, holding that the ADR Agreement was not binding on Helen Cullinane or her estate. On appeal, the Nebraska Supreme Court upheld the lower court’s conclusion, finding that evidence of fraudulent inducement precluded the enforcement of the arbitration agreement.

Court Does Not Compel Arbitration for Claims Not Explicitly Mentioned

In June 2015, Dollar General filed a criminal affidavit against one of its employees, Rebecca Keyes, and she was subsequently arrested for embezzlement. Keyes was found not guilty in the criminal case, and the charges were dismissed because Dollar General failed to appear. Keyes then brought a civil action against Dollar General for malicious prosecution, infliction of emotional distress, defamation, false imprisonment, fraud, deceit, and misrepresentation. Dollar General sought to compel arbitration, arguing that the arbitration agreement in Keyes’ employment contract should govern her claims.

The trial court found that the claims Keyes brought related back to the agreement and granted the motion to compel arbitration. On appeal, the Mississippi Supreme Court rejected Keyes’ argument that Dollar General had, by filing a criminal complaint, waived its right to compel arbitration. It wrote specifically that “the law does not require choosing between reporting a crime and maintaining the right to arbitrate future disputes that may arise.” The court also considered whether Keyes’ claims were within the scope of the arbitration agreement.

The court noted that the employment agreement’s arbitration clause specifically mentioned defamation and therefore ruled that aspect of Keyes’ claim to be arbitrable. The other claims, however, were not explicitly mentioned and no evidence was presented to show that Keyes would have presumed these other claims to be within the scope of the clause. The court therefore refused to compel arbitration as to any claim other than defamation.

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Ben Pincus and Elise Williard

Ben Pincus and Elise Williard are law students at the University of Oregon School of Law and serve as law student editors for Dispute Resolution Magazine.