Dear Readers:

On July 8, 2011 the U.S. Court of Appeals for the District of Columbia Circuit held, in a divided 2-1 panel decision, that Exxon Mobil is not immune from claims of civil damages liability under the Alien Tort Statute  for torture and extrajudicial killing allegedly committed at its behest by the Indonesian military forces against civilian tribesmen in Indonesia.  The outcome on the issue of ATS liability of corporations is the opposite of that reached last year by a  divided panel in the U.S. Second Circuit Court of Appeals. An analysis of one of the key issues in both cases, that may be decisive if as seems increasingly likely one case or the other reaches the U.S. Supreme Court, is discussed in my post today in the Developments section of my general website. www.lexmarc.us

Regards.

Marc

Dear Readers:

The U.S. Second Circuit Court of Appeals today issued its second significant decision under the Foreign Sovereign Immunities Act of the current week. With apologies that I have not yet provided you with synopsis or analysis of the earlier ruling, I invite you to read the account of the decision today, posted to my general website. www.lexmarc.us

Warm regards.

Marc Goldstein

As New York’s workforce took flight from offices and cubicles to launch the Independence Day Weekend, the US Second Circuit Court of Appeals in Manhattan found that there are still a few breaths of life remaining in class arbitration, deciding to reinstate an arbitrator’s award in favor of a proposed employment discrimination class arbitration. (Jock v. Sterling Jewelers, Inc., 2011 WL 2609853 (2d Cir. July 1, 2011)). The award at issue addressed only whether the arbitration clause permitted a class arbitration, and not whether the proposed class should be certified.

The panel majority in the Second Circuit rejected the District Court’s conclusion that the arbitrator’s award could not be upheld under the Supreme Court’s 2010 Stolt-Nielsen decision. Stolt-Nielsen, per this Second Circuit panel, does not prevent an arbitrator from interpreting an arbitration clause to permit class actions if the arbitrator finds the intent of the parties by reading the arbitration clause in light of the applicable law. In such a case, Stolt-Nielsen does not bar class arbitration, said the Court, because Stolt-Nielsen only limited the arbitrator in construing the clause because the parties had stipulated that they had not made any agreement concerning class arbitration. The panel understood Stolt-Nielsen to hold that this stipulation fully disposed of any issue concerning the intent of the parties, such that the arbitrator’s decision in favor of class arbitration in that case could only have been based on the arbitrator’s conception of sound policy.

In this case, however, intent of the parties was an open question in the opinion of the panel majority, given the text of the arbitration clause. The clause — inserted by the employer in what was conceded to be an adhesion employment contract of a national jewelry retail chain — stated that any action the employee could have brought in court had to be brought in arbitration, and that the employee would have the right to obtain from the arbitrator an “equal remedy” to what a court might have provided. The arbitrator had applied to this language a principle of Ohio contract law that, in an adhesion context, terms decidedly more favorable to the drafter will not be implied but must be stated expressly.

When the arbitrator proceeds in this fashion, the Second Circuit holds in Jock v. Sterling, she avoids the Stolt-Nielsen proscription against the arbitrator “dispensing [her] own brand of industrial justice.” Instead, she gains the benefit of the still-narrow post-Stolt-Nielsen conception of vacatur for “exceeding powers” under FAA Section 10(a)(4), i.e. that the issue resolved by the arbitrator either (i) was not submitted to her by the parties, or (ii) even if so submitted, was an issue that the text of the agreement or the applicable law clearly prevented her from deciding.

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A curious element of Jock v. Sterling is what it may portend for judicial deference to arbitrators in contexts other than class arbitration, including arbitrators’ decisions purporting to apply or interpret rules of arbitration agreed upon by the parties.

In January 2010, four months before the Supreme Court decided Stolt-Nielsen, another Second Circuit panel had held that an arbitrator did not exceed his powers when he purported to interpret ICDR Rule 30.1 – the rule dealing with arbitral correction of clerical and similar errors — to permit re-weighing of all the evidence and issuance of an amended award with a different remedial result after correcting the arbitrator’s mis-description of certain invoices in the original final award. (T. Co Metals LLC v. Dempsey Pipe & Supply, Inc., 592 F.3d 329 (2d Cir. 2010)).

The Second Circuit in Dempsey Pipe stated that the “exceeding powers” ground for vacatur “focuses on whether the arbitrators had the power, based on the parties’ submissions or the arbitration agreement, to reach a certain issue….” But after Stolt-Nielsen, as the Jock v. Sterling panel acknowledges, agreement of the parties to the submission of the issue is only one branch of the analysis. There remains the question of whether the arbitrator decided the issue according to contractual rather than policy criteria.

Dempsey Pipe is notably not cited in Jock v. Sterling in its discussion of the Second Circuit’s recent “exceeding powers” jurisprudence.  And it is evident that Stolt-Nielsen has added a dimension to “exceeding powers” analysis: even if the arbitrator clearly had power to decide the issue, she must decide it on grounds that are appropriate contractual grounds (text, law, custom and usage of trade, etc.) and not based on conceptions of good policy.

The absence of a citation to Dempsey Pipe in Jock v. Sterling may be innocuous, but equally it may indicate that at least some Second Circuit judges would view what the arbitrator did in Dempsey Pipe – giving substantive reconsideration to the merits as an implied power under the clerical error correction rule — as a decision based on the arbitrator’s conception of sound policy that would not survive an “exceeding powers” vacatur challenge in light of Stolt-Nielsen.

Dear Readers:

On my general website today, I report on a very significant Second Circuit decision concerning civil liability under the RICO (federal racketeering) statute. The case has already once been to the U.S. Supreme Court, and a petition for certiorari from this further decision can be expected.  My report is found under Legal Developments at www.lexmarc.us

National holiday greetings to U.S. and Canadian readers.

Marc

Class arbitration in the US may have some remaining vitality, under arbitration agreements made before the recent Concepcion decision and which do not include express class action waivers. A recent decision from a federal district judge in San Francisco indicates this, as the Court held that it was for the arbitrators to decide whether the language of the arbitration clauses at issue permits classwide arbitration. (Hayes v. Servicemaster Global Holdings, Inc., 2011 WL 2471001 (N.D. Cal. June 22, 2011).

After sorting through the Supreme Court’s decisions in Bazzle, Stolt-Nielsen, and (by implication) Concepcion, this Court concluded that there were legitimate questions about the intent of the parties as well as questions about precisely what arbitration clause language each of the plaintiffs had agreed to in their employment contract.  The fact that the arbitration clauses were “silent” about class arbitration, in the sense of containing no express reference to class arbitration, was not dispositive, the Court held. Stolt-Nielsen should not be read broadly to preclude arbitrators from permitting arbitration whenever there is such “silence.” The “silence” of the arbitration clause in Stolt-Nielsen was of special significance, said this Court: it connoted, in light of a stipulation of the parties, that they had made no agreement about class arbitration. Without such a stipulation, the Court reasoned, arbitrators after Stolt-Nielsen may still apply to the class arbitration issue rules of state contract law concerning implication of missing terms.

Further, in looking for the intent of the parties, the Court holds, arbitrators may take into consideration that the state of State law concerning class arbitration at the time of the arbitration agreement – which, in the case of California, included the rule treating as unconscionable an arbitration agreement in an adhesion contract that purported to exclude class arbitration.  That rule (the so-called “Discover Bank Rule”) was expressly overruled by the Supreme Court in Concepcion. But it survives, this Court holds, at least as evidence of parties’ intentions in regard to arbitration clauses signed while the Discover Bank Rule was good law.

It has been widely assumed that after Concepcion, consumer and employment contracts will be widely reviewed to include class action waivers if they do not already.  But even if this does occur, there will remain situations where, due to contracting customs, or relatively more equal bargaining power, the arbitration clause will not expressly address the class actions question. While the Supreme Court majority in Concepcion spoke unfavorably toward class arbitration, nevertheless the Court did not hold that the question of whether class arbitration is permitted must always be taken away from the arbitrator by the courts.  It is reasonable to expect that many arbitrators will continue to be asked to decide whether the agreements permit class arbitration, and that some class arbitrations will proceed based on such decisions.

Dear Readers:

Foreign companies may be exposed to US discovery sought for use in litigation outside the United States. A recent federal court decision rejected an attempt to serve a subpoena for such discovery on a Chinese company at the Chicago offices of its wholly-owned subsidiary. A discussion can be found in the Legal Developments section of my general website. www.lexmarc.us

Regards.

Marc Goldstein