Those looking for a sign of how the post-Scalia Supreme Court will view arbitration issues may have gotten that sign – “not very interested” – based on recent denials of certiorari by the Court.
Dueling dispute resolution clauses
On April 18th, SCOTUS denied certiorari in Chorley Enterprises Inc. v. Dickey’s Barbecue Restaurants, Inc., 807 F.3d 553 (4th Cir. 2015) (SCOTUS case no. 15-719). We didn’t cover the Fourth Circuit’s decision in 2015 because we thought the case was too one-off and involved a situation that was unlikely to happen in the securities arbitration world. But we think it’s newsworthy anytime SCOTUS grants or denies cert. in an arbitration-related case. What happened in Chorley? Briefly stated, the franchise agreement had a predispute arbitration agreement (“PDAA”) but also contained a “litigation clause” required by Maryland law providing that franchisees could sue under the Maryland Franchise Law. Which clause was to be enforced? “Both,” said The Fourth Circuit. How so? Franchise law claims could go to court while contractual issues would be arbitrated (ed: see why we declined to cover the case below?). Specifically, “[a]s a matter of law, the clear and unambiguous language of these provisions requires that the common law claims asserted by Dickey's must proceed in arbitration, while the franchisees’ Maryland Franchise Law claims must proceed in the Maryland district court.” The Court of Appeals also rejected Dickey’s argument that the Maryland law was preempted by the Federal Arbitration Act (“FAA”).
Conflicting rulings on the same non-available ADR provider not a problem
The series of cases below all dealt with replacing a non-available ADR provider -- National Arbitration Forum -- named in a nursing home PDAA. FAA section 5 may be used to select an arbitrator where the agreed-upon method of arbitrator appointment fails. At issue in these cases was whether a replacement arbitration forum may be designated by the court, where the ADR provider named in the PDAA was unavailable to administer the case. These cases involved claims brought on behalf of residents whose nursing home admission documents contained a PDAA calling for arbitration under the NAF Rules. The organization declined to handle the cases, because it had signed a consent decree with Minnesota in 2009 agreeing not to administer consumer cases.
In SAA 2016-08, we covered Courtyard Gardens Health & Rehabilitation, LLC v. Arnold, 2016 Ark. 62 (Feb. 18, 2016), where a divided Arkansas Supreme Court ruled in a 4-3 decision that FAA section 5 can be used to select a replacement arbitration forum. The PDAA called for arbitration under the NAF Rules, but not specifically by NAF. The parties in Courtyard became embroiled in a dispute over whether the trial court could name a replacement arbitration forum, with the court refusing to do so under the “impossibility of performance” doctrine. The Arkansas Supreme Court reversed, holding that FAA section 5 could be applied because, while arbitration was integral to the parties’ agreement, NAF as administrator was not. Certiorari denied.
In SAA 2016-09, we reported that SCOTUS on February 29th denied a petition for certiorari of a similar case, Wert v. ManorCare of Carlisle, 124 A.3d 1248 (Pa. 2015), also involving another nursing home PDAA calling for NAF. The effect of the cert. denial was to let stand the Pennsylvania Supreme Court’s 5–2 decision not to enforce the PDAA. Said the Pennsylvania Supreme Court, “Section five of the FAA cannot preserve NAF-incorporated arbitration agreements unless the parties made the NAF's availability non-essential by specifically varying the terms of its procedure. Regardless of whether Section five may apply where there is a lapse in the administrator, by its own rules, the NAF must administer its code unless the parties agree to the contrary” (emphasis in original; footnote omitted). Certiorari denied.
Finally, on April 25th, the Court denied cert. in Beverly Enterprises, Inc. v. Cyr, 608 Fed. Appx. 924 (11th Cir. 2015) (SCOTUS no. 15-821), a case with a Wert-like fact pattern. In a per curiam ruling the Eleventh Circuit had held that “the NAF code is ‘integral’ to the agreement in this case because the agreement explicitly incorporates the NAF code, making the code an essential part of the agreement.” Again, certiorari denied.
Seems to us the Court is less interested in taking on arbitration issues, given that: 1) it has let stand conflicting decisions involving the same PDAA in the cases discussed directly above; and 2) it eschewed taking on the FAA preemption argument in Dickey’s. To us, this was worthy of SCOTUS review, since the Maryland law seems to be the type of state law that impinges on arbitration, a Concepcion no-no. Time will tell!
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