There have been a few interesting arbitration decisions this year. One is from the Supreme Court and the other from the Sixth Circuit. Both of them rejected the employer's arguments.
While the Federal Arbitration Act, 9 U.S.C. §1 et seq. gives federal courts the power to decide disputes over arbitration, the Supreme Court had previously ruled that the FAA does not create federal question jurisdiction. Accordingly, federal courts – as courts of limited jurisdiction -- must examine and "look through" to the underlying complaint to find federal question or diversity jurisdiction before entertaining petitions to compel arbitration under §4. In this case, the employee brought federal and state discrimination claims and sought to vacate an adverse arbitration award through state court. Badgerow v. Walters, No. 20-1143 (3-31-22). The employer, citing federal question jurisdiction, removed the case to federal court. Federal courts have the power under §§ 9 and 10 to vacate and confirm arbitration awards. However, the Court held that the “look-through” authority to find the underlying federal question (or diversity) only applied to petitions brought under §4 and not to petitions to vacate or confirm brought under §§ 9 or 10. Unlike §§9 and 10, Section 4 specifically explains that petitions may be filed with the federal court which would have jurisdiction “save for [the arbitration] agreement.” Sections 9 and 10 merely refer to filing the petition in the federal court where the award was made; they do not specifically refer to the question of jurisdiction. The omission of a reference to jurisdiction in §§9 and 10 was deemed deliberate by Congress. Moreover, because arbitration awards are creatures of contract and settlement agreements of disputes over federal law are also regular contracts, they are generally creatures of only state law, not the federal law which was implicated by the underlying dispute. Therefore, an issue over a regular contract dispute does not create a federal question necessary to support federal court jurisdiction over petitions to vacate or confirm under the FAA.
· The Sixth Circuit held that the arbitration agreements of the individual employee class plaintiffs – which explicitly applied to ERISA claims -- did not apply to an ERISA plan on whose behalf the employees brought an ERISA breach of fiduciary duty action against the employer. Hawkins v. Cintas Corp., No. 21-3156 (6th Cir. 4-27-22). The plaintiffs alleged that the employer had breached its fiduciary duty to the Plan by failing to include passively-managed fund options in the Plan and charging the Plan excessive fees. “Section 502(a)(2) suits are ‘brought in a representative capacity on behalf of the plan as a whole.’” The Court distinguished the arbitration clause which covered only “claims” and not the plaintiffs’ “rights” to bring a fiduciary duty claim on behalf of the ERISA Plan. “Had Plaintiffs brought a claim under § 503(a)(1)(B), or a claim that should have been brought under that section, then it might be the kind of individual claim subject to arbitration under an individual participant’s employment agreement.” Further, the Court refused to impute to the Plan the employer’s agreement to arbitrate. There was no evidence that the Plan itself had agreed to arbitrate its claims or to permit the plaintiffs to agree on its behalf. “In the absence of a sufficient manifestation of the Plan’s consent to arbitrate these claims, we hold that the Plan has not consented to arbitration.”
NOTICE:
This summary is designed merely to inform and alert you of recent legal
developments. It does not constitute legal advice and does not apply to any
particular situation because different facts could lead to different results.
Information here can change or be amended without notice. Readers should not
act upon this information without legal advice. If you have any questions about
anything you have read, you should consult with or retain an employment
attorney.
