The Honorable W. Royal Furgeson, Jr., Senior U.S. District Court Judge for the Northern District of Texas, has published an interesting article in the February 2013 Texas Bar Journal entitled “Senior Judges of the Federal Courts: Their Choices and the Consequences.” In the article, Judge Furgeson discusses the often difficult choices federal judges face after reaching retirement age and the effect those choices can have on both a judge’s ability to earn a living and the federal judicial system as a whole. Once a federal judge is eligible for retirement, he or she may choose to receive an annuity equal to the rate of pay received at retirement or to continue working as a senior judge. Although retired federal judges may engage in outside employment, senior judges remain subject to a number of limitations on outside-earned income. In the article, Judge Furgeson discusses in detail the current trend for senior federal judges to continue conducting trials. Presently, many federal judges who reach retirement age choose to remain on the bench as a senior judge. In fact, more than one-quarter of all federal trials were reportedly held before a senior judge in 2009. In addition, more than 20 percent of cases terminated before a senior judge during the same year. According to Judge Furgeson: The fact is, if there were any significant negative change in the number of federal judges taking senior status instead of retiring, the impact on the federal judiciary would be devastating. The article concludes by stating the federal judicial system would see dramatic bottlenecks if the federal judiciary begins retiring in larger numbers. Although Judge Furgeson states many aging federal judges continue working due to interesting work and a desire to serve the public, he reportedly believes this may change in the future as a direct result of salary erosion.

In an unpublished opinion, the Fifth Circuit has reversed a United States District Court’s order compelling a ship builder and a propulsion system manufacturer to arbitrate a dispute between them. In VT Halter Marine, Inc. v. Wartsila North America, Inc., No. 12-60051, (5th Cir. Feb. 8, 2013), a ship operator, Vessel Management Services, Inc. (“Vessel Management”) contracted with a ship manufacturer, VT Halter Marine, Inc. (“VTHM”), to build a number of large vessels. The contract between the parties did not contain an arbitration clause. Vessel Management also contracted with Wartsila North America, Inc. (“Wartsila”) to purchase several vessel propulsion systems for the ships that VTHM was building. The contract between Vessel Management and Wartsila contained an arbitration clause that stated: This Agreement shall be construed in accordance with the laws of the State of New York, without reference to its conflict of laws provisions. Any dispute between the parties arising out of or in connection with this Agreement shall be finally settled under the Rules of Arbitration of the American Arbitration Association by one or more arbitrators appointed in accordance with the said rules, in New York, New York. VTHM did not enter into a contract with Wartsila and was not a signatory to the contract between Vessel Management and Wartsila. Once the propulsion systems were completed, however, Wartsila delivered them directly to VTHM for installation. After the propulsion system on one of the ships built by VTHM failed inspection, Vessel Management demanded that VTHM purchase a new propulsion system. According to VTHM, Vessel Management did so based on Wartsila’s misrepresentation regarding the quality of VTHM’s workmanship. VTHM eventually purchased the new system in an effort to avoid paying any potential liquidated damages. VTHM later filed a lawsuit against Wartsila in the United States District Court for the Southern District of Mississippi alleging breach of warranty and tortious interference with contractual relations. According to VTHM, the company stood in the shoes of Vessel Management for purposes of equitable subrogation. Wartsila responded by filing a motion to compel arbitration. Although VTHM conceded that its breach of warranty claim was subject to arbitration, the company argued that its tortious interference claim was not. Still, the district court ordered both claims to arbitration and dismissed the case. VTHM then filed an appeal in the Fifth Circuit. Initially, the appeals court dismissed Wartsila’s claim that de novo was an incorrect standard of review because the district court relied on principles of equitable estoppel. According to the court: Wartsila provides no case, and we can find none, where this Court reviewed for abuse of discretion a district court order compelling arbitration that did not clearly apply equitable estoppel. Because there is no indication from the district court’s order that it applied equitable estoppel, we assume that it did not. Next, the Fifth Circuit said, This Court in Pennzoil articulated the two general requirements for compelling a party to arbitrate a particular dispute: the court must determine both that (1) the two parties have a valid agreement to arbitrate, and (2) the dispute in question falls within the scope of that arbitration agreement. 139 F.3d at 1065. According to the Fifth Circuit, the lower court completely overlooked the fact that VTHM was not a party to the sales contract that contained an arbitration clause. Instead, the appeals court said the district court incorrectly addressed the scope of the agreement. Finally, the appellate court held, Ultimately, regardless of whether the district court correctly understood the nature of the contracts between the parties, Wartsila concedes that it has no valid agreement to arbitrate with VTHM. Thus, the first requirement of Pennzoil cannot be satisfied; VTHM cannot be compelled to arbitrate under general arbitration principles and the district court erred in so holding. We decline to determine whether equitable estoppel compels arbitration at this point. Instead, we remand this case to the district court to determine whether direct benefits equitable estoppel applies, as Wartsila urges. The Fifth Circuit reversed the lower court’s holding and remanded the case for a determination regarding whether an exception that binds non-signatories to an arbitration agreement applied.

Professor Linda S. Mullenix, Morris & Rita Atlas Chair in Advocacy at the University of Texas School of Law, has published a research paper entitled “Arbitrating Federal Antitrust Claims, Class Action Waivers, and the ‘Effective Vindication’ Rule,” Univ. of Texas Law, Public Law Research Paper No. 349. The paper is a preview of the issues before the United States Supreme Court in American Express Corp. v. Italian Colors Restaurant, et al. (No. 12-133). The appeal from the United States Court of Appeals for the Second Circuit addresses whether the Federal Arbitration Act permits a court to invalidate an arbitration agreement that does not permit class arbitration of a federal law claim. The case is currently set for oral argument on February 27, 2013. Here is the abstract: This article previews the issues and arguments in American Express Corp. v. Italian Colors Restaurant, et al., on the Court’s 2012-13 docket, to be argued February 27, 2013. The respondent retail merchants entered into agreements with petitioner American Express detailing how the respondents would accept Amex’s credit and charge cards. Respondents brought a Sherman Antitrust Act lawsuit against Amex, claiming that Amex used its monopoly power to force merchants to accept the agreement. Amex responded that the agreement requires arbitration, but prohibits classwide arbitration. The Court must now determine the effect in a federal Sherman Antitrust Act action of an arbitration clause that prohibits classwide arbitration, but where enforcement of the arbitration clause would effectively prevent the plaintiffs from vindicating their rights in the arbitral forum. This appeal represents the third time in three years that the Supreme Court will consider the nature and scope of an arbitration agreement that contains a class action waiver — that is, a provision that does not permit an arbitration to be resolved on a classwide basis. In spite of this, the plaintiffs below (the respondents on appeal) contend that this case does not concern classwide arbitration at all, and that the classwide arbitration issue is a red herring. The primary issue the Court will address is whether a federal court may invalidate an arbitration agreement that a defendant invokes to resolve a Sherman Antitrust Act claim when the arbitration agreement does not permit class arbitration, but where the litigant has shown that it would be unable to effectively vindicate its federal statutory rights to prosecute the antitrust claim in the arbitral forum? Amex is significant because of the pervasiveness of arbitration provisions in modern commercial and consumer transactions, and the need for certainty in the interpretation and application of these provisions. Judicial reception to the use of arbitration as a means of alternative dispute resolution has shifted over time. Whereas courts once viewed such provisions with antipathy, courts now embrace the public policy doctrine favoring such private dispute resolution auspices. Nonetheless, this shift in appreciation for arbitration has occurred in a litigation landscape characterized by two-party disputes. In the past decade, the emergence of classwide arbitration has taken contracting parties and the courts somewhat unaware. The prevalence of disputes over classwide arbitration, then, has exposed a challenging issue for ensuring certainty in dispute resolution. Moreover, fundamental public policy issues underlie the litigation over class action waivers in arbitration agreements. In addition, courts now recognize that the costs associated with certain types of complex litigation may effectively render arbitration impossible. The Court’s evolving arbitration jurisprudence has shaped corporate transactional behavior. Corporate defendants typically seek to insure against the unintended consequences of classwide arbitration by specifically prohibiting it through contractual language. However, as respondents point out, corporate defendants increasingly haveincluded more nuanced provisions in arbitration clauses to make arbitration more attractive to potential plaintiffs. These additional provisions include such measures as cost-shifting and payment of filing and arbitration fees. On the other hand, plaintiffs seek to ensure access to arbitral justice by invoking unconscionability doctrines or the effective vindication rule. On a number of occasions now, the Court has tried to provide guidance for the construction and application of arbitration clauses that either are silent with regard to classwide arbitration or that contain class action waivers. In its most recent venture, the Court in Concepcion rather thoroughly canvassed all arguments in favor of and opposition to the enforcement of class action waivers, albeit on review of a state Supreme Court decision. The Amex appeal re-canvasses much the same arguments as in Concepcion, only the context of purported enforcement of federal antitrust statutes (rather than state law claims). It remains to be seen whether the different procedural posture makes a material difference for the Court’s appreciation of class action waivers, or whether this appeal causes the Court to further qualify its Randolph, Stolt-Nielsen, and Concepcion decisions. In addition to the class action waiver dispute, this appeal also offers the Court the opportunity to clarify the effective vindication rule and address that it was mere dicta in Randolph or an important consideration in the enforceability of arbitration clauses. The Randolph decision sets forth the effective vindication rule, adopted by many federal courts, and this appeal offers the Court an opportunity to revisit the scope of this doctrine. The full text of the paper is available for download from the Social Science Research Network, along with other articles written by Professor Mullenix.

A Texas promotions company that paid cycling champion Lance Armstrong bonus payments following his seven Tour de France wins has filed a breach of contract lawsuit in a Dallas district court against the now disgraced sports star. SCA promotions is seeking to recover more than $12 million the company paid to Armstrong in connection with several cycling wins. This case is especially interesting because SCA and Armstrong previously engaged in arbitral proceedings after the company refused to pay the cyclist a bonus for his 2004 win due to purported doping allegations. Following arbitration, SCA reportedly paid the cyclist a bonus and $7.5 million in attorney fees. SCA Chief Executive Officer Bob Hamman said in light of Armstrong’s recent doping admission, the payments were unearned and improper. He also stated the promotion company’s position is supported by USADA sanctions imposed against Armstrong last summer that include “forfeiture of any medals, titles, winnings, finishes, points and prizes.” A spokesperson for Armstrong disagrees. He claims the case may not be reopened because the parties’ 2006 settlement includes a provision that states, “No party may challenge, appeal or attempt to set aside the arbitration award.” Stay tuned to Disputing for updates regarding this lawsuit. You can also read more about the case on NPR.