In Dent et. al v. NFL, No. 15-15143, Sept. 6, 2018, former football players brought a class action suit asserting negligence, breach of statutory obligations, negligent hiring and negligent misrepresentation claims against the NFL in connection with the leagues practices concerning the use of pain masking medications. The Ninth Circuit Court rejected the NFL’s assertions that such claims were preempted by Sec. 301 of the LMRA, ruling that such claims do not have to brought under the terms of the collective bargaining agreement. The Court opined that:

Preemption under § 301 “extends only as far as necessary to protect the role of labor arbitration in resolving CBA disputes.” (citation omitted). As pled, the players’ claims do not constitute a dispute over the rights created by, or the meaning of, the CBAs. Their claim is that when the NFL provided players with prescription drugs, it engaged in conduct that was completely outside the scope of the CBAs.

The ruling thus permitted the class action to proceed without being subject to the arbitration provisions of the CBA.

In Barone v. City of Springfield, No. 17-35355, Sept. 5, 2018, a police officer was suspended for four weeks for breach of a code of conduct. Upon her return to work, the officer was required to sign a Last Chance Agreement that contained a broad non-disparagement provision that barred her from “from saying or writing anything negative about the Department, the City, or their employees.” When she refused to sign the LCA, she was terminated. The Ninth Circuit Panel ruled that the LCA was an improper prospective restriction which violated the employee’s First Amendment rights and constituted an impermissible restraint of the employee’s speech as a private citizen on matters of public concern.

9th Cir. Split decision rules that a Labor Arbitrator may reform a CBA due to mutual mistake of the parties.

In ASARCO LLC v. United Steel, Paper and Forestry, Rubber, Allied Industrial and Service Workers International Union, No. 16-16363, June 19, 2018, the Union sought an arbitrator’s determination as to whether new hires were entitled to receive a contractual bonus after the Union and Employer agreed to exclude new hires from a pension provision but failed to address the bonus matter with regard to new hires. The arbitrator determined from the evidence submitted during six days of hearings that the parties had made a mutual mistake during their negotiations and had not considered or discussed the bonus provision with regard to its applicability to new hires. Upon finding that the issue resulted from a mutual mistake, the arbitrator reformed the contract to address the omission.

The Employer cited the CBA provision that stated:

The arbitrator shall not have jurisdiction or authority to add to, detract from or alter in any way the provisions of this Agreement.” And argued that the arbitrator’s award should not be upheld because: “(1) the award does not draw its essence from the [CBA]; (2) the arbitrator exceeded his authority in reforming the [CBA]; and (3) the award is contrary to public policy.”

A divided Ninth Circuit Panel concluded that “the arbitrator was acting within his authority when he crafted a remedy to cure the parties’ mutual mistake.” The Court noted that the arbitrator gave an extensive treatment of the CBA and acknowledged the contractual no-add provision and concluded that the arbitrator’s decision was grounded in his reading of the CBA. The Court cited the particular role and relationship of the arbitrator in the context of collective bargaining, stating:

Indeed, the mandatory and prearranged arbitration of grievances is a critical aspect of the parties’ bargain, the means through which they agree ‘to handle the anticipated unanticipated omissions of the collective bargaining agreement.’” Such omissions occur because “[u]nlike the commercial contract, which is designed to be a comprehensive distillation of the parties’ bargain, the collective bargaining agreement is a skeletal, interstitial document.” Consequently, “[t]he labor arbitrator is the person the parties designate to fill in the gaps; for the vast array of circumstances they have not considered or reduced to writing, the arbitrator will state the parties’ bargain.” Id. He is “‘their joint alter ego for the purpose of striking whatever supplementary bargain is necessary’ to handle matters omitted from the agreement.” (internal citations omitted.)

The Court also ruled that the arbitrator’s decision should not be overruled finding that the decision was “not contrary to an explicit, well-defined, and dominant public policy, as ascertained by reference to positive law and not from general considerations of supposed public interests.”

The Court also suggested that the outcome of the decision might have been materially different had the Employer not waived a potential jurisdictional arbitrability argument.

Court considers “evident partiality” as grounds for vacature of arbitration decision in three member panel arbitrations and adopts a “clear and convincing” standard for non-neutral party appointed arbitrators.

Parties sometimes adopt arbitration provisions calling for a panel of three arbitrators. Three party arbitration panels are most frequently found in insurance damage appraisal/umpire, reinsurance, lease rent appraisals and large value commercial arbitration matters. Usually, each of two parties appoints an arbitrator of their choosing and the two appointed arbitrators appoints the third arbitrator. Whether all arbitrators or only the third arbitrator is expected to be neutral and independent is often not clearly expressed in the parties’ arbitration agreement which can cause substantial tension and confusion in the integrity of the arbitral process.

One such case was recently decided by the U.S. Second Circuit Court and dealt with what constitutes “evident partiality” (one of the limited grounds for vacating an arbitration decision under the FAA, Sec. 10 (a)(2), the Uniform Arbitration Act (Sec. ___) and the Revised Uniform Arbitration Act (See HRS Sec. 658A-__).

As reported in a recent blog by Squire Patton & Boggs:

In Certain Underwriting Members of Lloyd’s of London v. State of Florida, Department of Financial Services, No. 17-1137, 2018 U.S. App. LEXIS 15377 (2d Cir. Jun. 7, 2018), the district court had vacated a reinsurance arbitration award in [one of the party’s] favor based on evident partiality of the… party-appointed arbitrator for failure to disclose close relationships with parties associated with the [party]. The district court found that the arbitrator’s pre-existing and concurrent relationships with the [party’s]s representatives were considerably more extensive than what the arbitrator disclosed. The district court held that the failure to disclose those relationships were significant enough to demonstrate evident partiality.

In reversing and remanding the case for reconsideration by the district court, the circuit court found that the district court weighed the arbitrator’s conduct under the standard governing neutral arbitrators. the Second Circuit held that “a party seeking to vacate an award under Section 10(a)(2) must sustain a higher burden to prove evident partiality on the part of an arbitrator who is appointed by a party and who is expected to espouse the view or perspective of the appointed party.”

The court noted that while evident partiality will be found where a reasonable person would have to conclude that an arbitrator was partial to one party in the arbitration, the challenging party must prove the existence of evident partiality by clear and convincing evidence. The court distinguished between what must be shown in a neutral arbitration setting from a party-appointed setting. In determining that there will now be a distinction in the Second Circuit between party-appointed and neutral arbitrators in considering evident partiality challenges, the court stated that “[e]xpecting of party-appointed arbitrators the same level of institutional impartiality applicable to neutrals would impair the process of self-governing dispute resolution. ” In other words, because reinsurance parties continue to seek out arbitral panels with expertise by using party-appointed arbitrators who are expected to serve as de facto advocates, the degree of partiality tolerated is set in part by the parties’ contractual bargain.

The distinction, held the court, “is salient in the reinsurance industry, where an arbitrator’s professional acuity is valued over stringent impartiality.” But, said the court, “a party-appointed arbitrator is still subject to some baseline limits to partiality.” For example, an undisclosed relationship is material if it violates the arbitration agreement. If, in this case, the party-appointed arbitrator had a personal or financial stake in the outcome, it would violate the “disinterested” qualification in the arbitration clause. Also, if the undisclosed fact results in a prejudicial effect on the award, it is material and warrants vacatur. But in “the absence of a clear showing that an undisclosed relationship (or the non-disclosure itself) influenced the arbitral proceedings or infected an otherwise-valid award, that award should not be set aside even if a reasonable person (or court) could speculate or infer bias.”