While state courts have been busy articulating novel interpretations of arbitration law this summer, federal courts seem intent on getting back to basics. In recent weeks, federal appellate courts have reminded parties who has the burden of proving an agreement to arbitrate, what should happen to the case when arbitration gets compelled, how parties waive their right to arbitration, and what is a “reasoned award.”
Burden of Proof
The Eleventh Circuit took the opportunity to clarify that when the plaintiff denies the existence of an arbitration agreement, state contract law determines who has the burden of proving the existence of the agreement. (Distancing itself from its own 1993 precedent.) In this case, Georgia law applied, and it provided that the defendant seeking to enforce the alleged arbitration agreement bears the burden of proving a valid arbitration agreement exists. Because the defendant credit card issuer had no proof that the plaintiff agreed to any terms at all when she completed her on-line application, and could not prove that it sent a Welcome Kit containing the arbitration agreement at issue, or even establish which cardholder agreement it sent to plaintiff, the appellate court affirmed the district court’s denial of the motion to compel arbitration. Furthermore, having presented “woefully inadequate” proof with its motion, defendant was not entitled to try and prove the existence of an arbitration agreement at a later trial. Bazemore v. Jefferson Capital Systems, LLC, 2016 WL 3608961 (11th Cir. July 5, 2016).
In the course of a “summary order” affirming the district court’s grant of a motion to compel arbitration, the Second Circuit took time to issue a reminder to lower courts. In that Circuit, the language of Section 3 is read quite literally. Section 3 says when there is an applicable arbitration agreement the court “shall on application of one of the parties stay the trial…”. Even if all claims are referred to arbitration, courts are not to dismiss an action if any party seeks a stay instead. To dismiss in that instance is an abuse of discretion. Virk v. Maple-Gate Anesthesiologists, PC, 2016 WL 3583248 (2d Cir. July 1, 2016).
Don’t Waffle, Or You’ll Waive
Everyone knows you can waive your right to arbitrate, right? But sometimes you need a good example of someone doing that, so that you can see exactly what to avoid. Martin v. Yasuda, 2016 WL 3924381 (9th Cir. July 21, 2016) can provide that example. Here the putative class of students at a private cosmetology school had all signed an enrollment agreement calling for arbitration. Yet in response to the students’ Fair Labor Standards Act (FLSA) case, the school moved to dismiss for a substantive failure to state a claim. When they were not completely successful, they filed an answer in which arbitration was one of 43 affirmative defenses. Finally, after engaging in some discovery, the defendant moved to compel arbitration, 17 months after the start of the case. Both the district court and the appellate court found the defendant had waived its right to arbitrate. (Key factors: defendant had told court it was not likely to enforce arbitration agreement and had forced court to decide motion on merits.) The court also confirmed that whether a party has waived its right to arbitrate by its litigation conduct is an issue for determination by the courts, not arbitrators.
In arbitration, parties can usually choose among three levels of award: simple award, reasoned award, or findings of fact and conclusions of law. But, the lines delineating those three levels are awfully fuzzy and undefined. Why does that matter? Because a party who contracted for “findings of fact” might be able to vacate its award if the arbitrator issued only a “reasoned award.” In the spirit of helpfulness, the Second Circuit defined a “reasoned award” in Leeward Construction Co. v. American Univ. of Antigua-College of Medicine, 2016 WL 3457266 (2d Cir. June 24, 2016). They held “that a reasoned award is something more than a line or two of unexplained conclusions, but something less than full findings of fact and conclusions of law on each issue raised before the panel. A reasoned award sets forth the basic reasoning of the arbitral panel on the central issue or issues raised before it. It need not delve into every argument made by the parties.”