There are at least four cases now before the U.S. Supreme Court that may be of significant interest to employers. Three were argued in October 2018, and certiorari was granted in the last case on Dec. 10.
The Three Cases Already Argued
The three cases argued all involve arbitration. The first, New Prime Inc. v. Oliveira, No. 17-340, was argued on Oct. 3, 2018. The issues presented were:
Whether a dispute over applicability of the Federal Arbitration Act’s (FAA’s) Section 1 exemption is an arbitrability issue that must be resolved in arbitration pursuant to a valid delegation clause; and (2) whether the FAA’s Section 1 exemption, which applies on its face only to “contracts of employment,” is inapplicable to independent contractor agreements.
Section 1 of the FAA excludes from the act’s coverage “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” 9 U.S.C. § 1.
This case is significant because of its potential impact on the arbitration of disputes with independent contractors in the trucking business. (We addressed the background of the case in our Feb. 28, 2018, blog article.) Petitioner New Prime Inc. argued that the scope of the Section 1 exemption should be resolved by an arbitrator based upon a valid delegation clause in the arbitration agreement. On the other hand, Dominic Oliveira argued that the court must resolve whether the FAA even applies before using it to compel arbitration. Both parties agreed that the term “contracts of employment” should be given its ordinary meaning from 1925, when the FAA was enacted. The sides, however, disagreed on the proper meaning of the term.
During oral argument on Oct. 3, several of the justices seemed to struggle with the meaning of contracts of employment and whether the use of the term “workers” broadened the scope of the provision beyond the employee/employer relationship. Indeed, Oliveira maintained that when the FAA was passed, contracts of employment merely referred to agreements to perform work, not a master-servant relationship.
Interestingly, counsel for Oliveira also stated that workers, not businesses, would fall within the exemption. In other words, “Did the parties contemplate that the person with whom they agreed would personally perform the work?” (Transcript at 42). But, counsel for New Prime pointed out that the independent contractor agreement at issue involved a limited liability company that Oliveira had created, not an individual.
The opinion in New Prime, which should be decided by mid-2019, will be of interest because of its exploration of the history of the FAA and the 1925 meaning of contracts of employment and workers. The firm filed an amicus brief in New Prime.
The next case, Lamps Plus Inc. v. Vareda, No. 17-988, was argued on Oct. 29, 2018. It raised the question of:
Whether the FAA forecloses a state-law interpretation of an arbitration agreement that would authorize class arbitration based solely on general language commonly used in arbitration agreements (emphasis added).
In Lamps Plus, the district court had denied the company’s motion to compel individual arbitration and ordered class arbitration. A divided Ninth Circuit panel affirmed, despite the fact that the arbitration agreement never mentioned class arbitration but instead inferred mutual assent to aggregate arbitration from standard agreement language. See 701 F. App’x 670 (9th Cir. Aug. 3, 2017).
During oral argument, the familiar divide between the liberal and conservative justices re-emerged. Justice Kagan asked questions directed to the contract language that required the parties to use arbitration “in lieu of any and all lawsuits or other civil proceedings.” On the other end of the spectrum, Chief Justice Roberts commented:
[T]he FAA is not a suicide pact. So, if the FAA says enforce the contract according to its terms, but one of the terms . . . is fundamentally inconsistent with arbitration itself, then, presumably, the FAA would preclude that term.
Amid the strong views of the justices also lurked the less colorful issue of the Court’s jurisdiction over the dispute. Does the text of the FAA authorize a party to appeal an order compelling arbitration but not the type that the party initially sought?
So, while the resulting opinion may be of less consequence because of the extensive use of class action waivers, it could also signal a return to pro-arbitration opinions from the Court.
The third arbitration case before the Court is Henry Schein Inc. v. Archer and White Sales Inc., No. 17-1272, which was also argued on Oct. 29. It involved claimed antitrust violations and presented the issue of:
Whether the FAA permits a court to decline to enforce an agreement delegating questions of arbitrability to an arbitrator if the court concludes the claim of arbitrability is “wholly groundless.”
The Fifth Circuit had premised its decision in Henry Schein, 878 F.3d 488 (2017), on the earlier opinion in Douglas v. Regions Bank, 757 F.3d 460, 463-64 (5th Cir. 2014), which held:
[i]f an ‘assertion of arbitrability [is] wholly groundless,’ the court need not submit the issue of arbitrability to the arbitrator.
Continuing, the Court of Appeals in Douglas stated, “[W]here there is no such plausible argument, ‘the district court may decide the “gateway” issue of arbitrability despite a valid delegation clause.’”
At the Supreme Court, the justices initially aired their diverse views on whether courts or arbitrators should decide whether arbitration is available. But when counsel for respondent began to present the position of Archer and White Sales Inc., things changed. Justices on both sides of the political spectrum seemed to signal their concerns with ambiguous exceptions that would limit the enforceability of arbitration agreements.
It’s always dangerous to handicap a decision based on oral argument, but the “wholly groundless” exception does not appear to have much sympathy among the justices.
The Next Chapter
Finally, on Dec. 10, the Court agreed to hear Kisor v. Wilke, No. 18-15, in which the petitioner, a Marine veteran, sought disability benefits for his post-traumatic stress disorder (PTSD) that arose from his military service. Based on the meaning of the term “relevant” contained in 38 C.F.R. § 3.156(c)(1), the Veterans Affairs Department denied him benefits. The Court of Appeals for the Federal Circuit ultimately affirmed and denied rehearing en banc, with three judges dissenting.
The Supreme Court took the case only on the first question presented by petitioner – whether the Court should overrule Auer v. Robbins, 519 U.S. 452 (1997), and Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945). Both decisions directed courts to defer to an administrative agency’s reasonable interpretation of its own ambiguous regulation.
Auer deference has been a concern from some business groups and academics as well as for justices Neil Gorsuch and Brett Kavanaugh. Indeed, Chief Justice John Roberts and Justice Clarence Thomas have also expressed misgivings regarding the administrative edifice that deference has created.
The Kisor case will give the Supreme Court the opportunity to rule on which entity should decide what an ambiguous law means – the courts or executive agencies. Thus, Kisor could have great significance and signal a continuing examination of deference.
The Bottom Line:
Three of the four cases now before the Supreme Court could have a significant impact on the enforcement of arbitration agreements, particularly in the trucking industry. The fourth could be the first step in the Court’s re-examination of deference to administrative agencies.