Part II.A: Section 2 Express Preemption – Textual Analysis by Philip J. Loree Jr. I. Introduction Part I of this series (here) was published the day before the United States Supreme Court heard oral argument in AT&T Mobility, LLC v. Concepcion, No. 09-893 (blogged here, here, here and here). Now that the argument has taken place, and we have had a chance to review the transcript (here), and listen to the audio (here), it’s time to begin delving into the express and implied preemption issues discussed at the argument, and considering the extent to which, if at all, Stolt-Nielsen, S.A. v. AnimalFeeds Int’l Corp., 559 U.S. ___, 130 S. Ct. 1758 (2010), bears on their resolution. Both Disputing and the Loree Reinsurance and Arbitration Law Forum recently posted their preliminary post-argument analyses (see here and here). I believe the argument was basically a toss-up, and that it mainly confirmed what I already knew or had surmised: This is a very difficult case, and the eight Justices who asked questions appear to be divided along ideological lines. I expected no less in light of the 5-3 and 5-4 split decisions in Stolt-Nielsen and Rent-A-Center West v. Jackson, 561 U.S. ___, 130 S. Ct. 2772 (2010). I was, however, quite impressed by how prepared and engaged the Court was, and was particularly impressed by the excellent job both counsel did in presenting their clients’ cases. (Andrew J. Pincus of the Washington, DC office of Mayer Brown LLP represented Petitioner AT&T Mobility, LLC and Deepak Gupta of the Public Citizen Litigation Group in Washington, DC represented Respondents, the Concepcions.) Of the eight Justices who asked questions, the four more liberal ones (Associate Justices Ruth Bader Ginsburg, Stephen G. Breyer, Sonia M. Sotomayor and Elena Kagan) appear to be leaning in favor of finding that Section 2 of the Federal Arbitration Act does not preempt the Discover Bank rule, while the four more conservative ones (Chief Justice John G. Roberts, Jr. and Associate Justices Antonin G. Scalia, Anthony M. Kennedy, and Samuel J. Alito, Jr.) appear to be leaning the other way. That said, Justices Ginsburg and Breyer asked the Concepcions’ counsel some tough questions, while Justices Scalia and Kennedy asked AT&T Mobility’s counsel some equally tough ones. The argument shed no meaningful light on what Associate Justice Clarence Thomas makes of this case. That came as no surprise; Justice Thomas only rarely questions counsel at oral argument, and that is undeniably his prerogative as a Supreme Court Justice. He joined in the Stolt-Nielsen and Rent-A-Center majority opinions, but those cases, unlike this one, did not directly concern the preemptive scope of the Federal Arbitration Act. Justice Thomas may well hold the deciding vote, but where he’ll ultimately cast it, nobody (at least outside the Supreme Court) knows or can predict with any reasonable degree of certainty. It is difficult to analyze this complex case without a fairly comprehensive understanding of the legal landscape against which the Court will rule. A number of commentators predict a victory for the Concepcions, but to the extent these commentators’ analyses and arguments are based on legal sources – as opposed to public policy, ideological preference, or perceptions about certain Justices’ ideological preferences — they are mainly based on oral argument questions. Those are certainly important sources of clues concerning the likely outcome, but hardly the most persuasive or reliable ones. The Court’s prior interpretations of Section 2’s savings clause are obviously relevant as they place in context what transpired at the argument, and may well presage how the Court will interpret the savings clause in this case. Accordingly, this Part II.A , and the upcoming Part II.B., will discuss the general principles of express preemption under Section 2, and how they bear on the question before the Court. Part II.A will focus on a textual approach to construction, and Part II.B on a purposive one. Both approaches, as we shall see, favor AT&T Mobility’s position. II. Express Preemption under Section 2 of the Federal Arbitration Act Section 2 of the Federal Arbitration Act declares that arbitration agreements within its scope “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract.” 9 U.S.C. § 2. Section 2 establishes federal law governing the enforceability of arbitration agreements that is applicable in both state and federal courts. Southland Corp. v. Keating, 465 U.S. 1, 16 (1984): “[in] enacting § 2 of the federal Act, Congress declared a national policy favoring arbitration and withdrew the power of the states to require a judicial forum for the resolution of claims which the contracting parties agreed to resolve by arbitration.” Southland, 465 U.S. at 10. The “central or primary purpose” of this federal substantive law “is to ensure that private agreements to arbitrate are enforced according to their terms.” See Stolt-Nielsen, 130 S. Ct. at 1773 (quotations and citations omitted). This “broad principle of enforceability” is limited in two respects only: 1. The arbitration “provisions” “must be part of a written maritime contract or a contract ‘evidencing a transaction involving commerce;’” and 2. “such clauses may be revoked upon [state-law] ‘grounds as exist in law and equity for the revocation of any contract.’” Southland, 465 at 10-11 (quoting 9 U.S.C. §§ 1 & 2). There is no dispute that AT&T Mobility’s arbitration agreement is “part of a. . . contract ‘evidencing a transaction involving commerce.’” The dispute is whether the Discover Bank rule is one for the “revocation of any contract” within the meaning of the savings clause. To answer that question, the Court will need to consider, among other things, whether “any contract,” as used in the savings clause, was intended to mean “all contracts” or “contracts of whatever kind” — or whether it means “some contracts that are not agreements to arbitrate;” “contracts of the type containing the arbitration agreement;” or “dispute resolution contracts.” III. A Textual Construction of Section 2’s Savings Clause Justices Scalia and Thomas are […]

by James M. Gaitis According to the Heisenberg Uncertainty Principle, (1) the position and momentum of an object cannot simultaneously be precisely known and (2) even more tantalizing, the more precisely one property (whether position or momentum) can be measured, the less precisely can the other. For those that seek overall clarity as to what is going on at the particle and wave level of physics (and perhaps in their everyday lives), the Uncertainly Principle ensures ambiguity at best. And so it is as well with American arbitration law and, most importantly, American arbitration vacatur law and the ever-endearing question regarding when arbitral awards may be vacated on the grounds of arbitrator acts “in excess of arbitral authority” or in “manifest disregard of the law.” Every time the position and momentum of the law begin finally to appear to be fixed and resolved by one or more judicial decisions, a new measurement (usually in the form of yet another judicial decision) shows how inaccurate and far off our expectations and understanding really were. Enter into the cosmos of arbitration law and theory the recent, “Not for Publication” decision of the Federal Court of Appeals for the Third Circuit in PMA Capital Ins. Co. v. Platinum Underwriters Bermuda, Ltd., 2010 WL 4409655 (3rd Cir., Nov. 8, 2010). PMA Capital serves as the most recent proof that the Arbitration Uncertainty Principle is alive and well, but only because the Third Circuit arguably succeeded in a brief, two-page decision to bring the possibility of rational measurement back into the calculus. For PMA Capital is more consistent with traditional arbitration law concepts and principles, and thereby more precise in its measurement of how arbitration law and practice should work, than the many errant and wayward decisions that have preceded it in recent years. Some of us who, from time to time, delve into the archived depths of traditional arbitration law cannot help but wonder why it is that American courts have long forgotten the meaning and existence of the time-honored distinction between “restricted” and “unrestricted” arbitration submissions. At one time, that distinction was of paramount importance in determining whether a court could properly vacate an arbitration award for legal error or, in some instances, even for errors in the application of controlling facts. In “unrestricted submissions” the parties granted the arbitrator authority to decide the issues based on principles of equity and fairness rather than on the application of a particular law; the arbitrators in essence were free to act ex aequo et bono. In contrast, in “restricted submissions” the parties generally required that the arbitrator’s decision be based on the application of a particular jurisdictional law or principle. The lucid and thorough discussion of these principles in Justice Story’s 1814 opinion in Kleine v. Catara, 14 F. Cas. 732 (C.C.D. Mass. 1814) shows, however, that even when an arbitrator was vested with broader authority under an unrestricted submission, that authority was not absolutely unfettered. Instead, as Justice Story noted, once an arbitrator elected to apply a particular law in a case governed by an unrestricted submission, the ensuing award nonetheless was subject to vacatur when the arbitrator was “mistake[n]” as to the correct application of that law. In other words, by entering into an unrestricted submission parties did not agree that arbitral mistakes would be utterly insulated from vacatur proceedings. Some semblance of rationality must still prevail. These same principles came to bear in PMA Capital. The arbitration provision contained within the parties’ reinsurance contract in PMA Capital in essence was an unrestricted submission. The provision directed the arbitrators to interpret this Agreement as an honorable engagement and not merely as a legal obligation. They are relieved of all judicial informalities and may abstain from following the strict rules of law. They will make their award with a view to effecting the general purpose of the Agreement in a reasonable manner rather than in accordance with the literal interpretation of the language. PMA Capital Ins. Co. v. Platinum Underwriters Bermuda, Ltd., 659 F.Supp.2d 631, 636 (E.D.Penn 2009). The reinsurance contract, itself, contained a deficit carry forward provision that the arbitrators apparently deemed to be inequitable or unfair. And the arbitrators thus issued an award that effectively wrote the provision out of the contract. After discussing the niceties of manifest disregard of the law and acts in excess of arbitral authority, the district court vacated the award on the ground that “the award was not rationally derived from the parties’ submissions” and the Third Circuit Court of Appeals agreed, approving the district court’s conclusion that “No court has held that such a clause gives arbitrators the right to re-write the contract they are charged with interpretation,” especially when the contract itself requires the enforcement of the very contractual provision the arbitrator chose to ignore “by ordering unrequested relief and rewriting material terms of the contract they purported to implement.” The Third Circuit thus noted: “That the honorable engagement clause permitted the arbitrators to stray from judicial informalities did not give them authority to re-invent the contract before them, or to order relief no one requested.” 2010 WL 4409655 at *2. The determinative principle that an arbitrator’s decision must be “within the submission” is a time-honored concept found in some of the most frequently cited cases, one such case being Burchell v. Marsh, 58 U.S. (17 How.) 344, 349050 (1854), which is often wrongly cited for a quite contrary proposition. Most importantly, it was this principle that drove the United States Supreme Court to famously observe in Wilko v. Swan, that “[i]n unrestricted submission . . . the interpretations of the law by the arbitrators in contrast with manifest disregard are not subject, in the federal courts, to judicial review for error in interpretation.” 346 U.S. 427, 436 (1953). In making this observation (which has a far more subtle meaning than is now attributed to it), the Wilko Court not only expressly relied on the Kleine and Burchell decisions mentioned above but, also, on a […]

A new paper is available from S.I Strong, Associate Professor of Law at the University of Missouri and contributor to this blog, entitled Class Arbitration Outside the United States: Reading the Tea Leaves. The paper was initially presented at the International Chamber of Commerce’s (ICC) Thirtieth Anniversary Annual Meeting on Multiparty Arbitration, held last December in Paris. The finished work appears in Dossier VII: Arbitration and Multiparty Contracts, published earlier this year by the ICC Institute of World Business Law. Here is the abstract: This draft paper, which is expected to be published in 2010 by the ICC Institute of World Business Law in Dossier VII – Multiparty Arbitration, discusses the question of whether and to what extent class arbitration (also known as class action arbitration) will expand beyond the borders of the United States and the ways in which the device might change to suit the needs of different legal systems. In so doing, the paper discusses recent empirical evidence involving the increasing availability of collective relief in the judicial context in systems around the world and argues that courts, arbitrators and parties outside the United States are unlikely to adopt the U.S. model of class arbitration but will instead create into a new form of multiparty arbitration that is more appropriately termed “collective arbitration,” due to anticipated similarities to various forms of collective redress in different legal systems. The discussion also considers the policy rationales affecting the decision to create or utilize a form of collective arbitration as well as the theoretical debates that affect the expansion of class or collective arbitration into new jurisdictions. The paper is available without charge from Social Science Research Network and may be read here. Other papers by Professor Strong can be found here. Last week, Disputing posted here about an international class arbitration article recently written by Professor Strong, From Class to Collective: The De-Americanization of Class Arbitration. Technorati Tags: ADR, law, arbitration

Another United States jurisdiction has adopted a mediation process to address the ongoing foreclosure crisis. The District of Columbia (D.C.) Council approved the “Saving D.C. Homes from Foreclosure Act of 2010,” earlier this month. The measure requires lenders to participate in six months of mediation with a homeowner prior to foreclosure. According to the Washington Post: Mediation allows the borrower and the lender’s representative to negotiate, with the guidance of an impartial go-between, over possible alternatives to a foreclosure, such as a loan modification. But neither side can be compelled to agree to a mediated solution. The District Mayor signed the Act into law on Thursday. The new requirement, managed by D.C.’s Department of Insurance, Securities and Banking, will affect more than 3,000 homes currently in foreclosure. Unlike other jurisdictions, D.C. does not require the courts to review foreclosure cases. Consequently, the foreclosure process can proceed quite quickly. Under the new law, a lender seeking to foreclose on a delinquent homeowner must notify the homeowner of the option to participate in mediation when a “Notice of Default” is sent. DS News magazine reports: The borrower must opt to participate in the mediation process within 30 days of receiving the information in the mail, by returning the necessary forms and paying a $50 fee. A mediation administrator will schedule a mediation session soon after the borrower opts into the program. The mediation session will be conducted by the administrator and the lender and borrower or their representatives must attend the meeting. The lender will be charged fines of $500 for missing the meeting or failing to bring required documents. If the borrower misses the meeting, the matter will be terminated and lenders may proceed with the foreclosure. D.C.’s new law follows closely behind a foreclosure mediation law implemented on July 1st in neighboring Maryland. Maryland’s law requires a lender pursuing foreclosure to send the homeowner a “Request for Mediation” form when it starts court proceedings. After that, “Homeowners have 15 days in which to file the request with the Circuit Court and must pay a non-refundable fee of $50.” The entire Washington Post article may be read here and the DS News magazine article may be read here. Disputing has discussed foreclosure mediation programs in several states recently including Nevada, Connecticut, Florida and Hawaii. Technorati Tags: ADR, law, mediation