Arbitrator and NAA member Lise Gelernter discusses a recent grant of certiorari by the U.S. Supreme Court in a case involving important issues under the Federal Arbitration Act.
On February 26, 2018 the Supreme Court granted certiorari (meaning it accepted an appeal) in a case arising the Federal Arbitration Act (FAA), Oliveira v. New Prime, Inc, 857 F.3d 7, reh’g and reh’g en banc denied (1st Cir. 2017). The two questions the Court will consider are:
- When parties have agreed to arbitrate certain disputes and to delegate questions of arbitrability to an arbitrator, if one party seeks to compel arbitration under the FAA, must a federal court decide first whether the FAA applies, or must the court allow the arbitrator to decide that issue?
- Does the FAA exemption for “contracts of employment” of transportation workers apply to independent contractors?
The Oliveira case was decided by the First Circuit Court of Appeals in Boston and involved a truck driver, Dominic Oliveira, who brought a class action in federal court against New Prime Inc., the trucking company for which he worked, for violations of minimum wage laws as well as for breach of contract. Mr. Oliveira had worked for New Prime as both a contractor and an employee and had signed an agreement to arbitrate all claims against New Prime and to delegate arbitrability and jurisdictional issues to the arbitrator. “Arbitrability” involves questions of whether the parties agreed to arbitrate a particular dispute and whether they have followed applicable procedural requirements, such as time limits on bringing claims. New Prime moved the federal district court to compel arbitration based on the arbitrability delegation clause, but the district court held that it first had to decide whether the FAA even applied to the case. This was because although the FAA requires a court to enforce arbitration agreements in general, there is an exemption for some “contracts of employment” in Section 1 of the FAA. The Supreme Court ruled in 2001 that the exemption applies only to workers like truckers, seamen and other transportation workers. See Circuit City Stores v. Adams, 532 U.S. 105 (2001). This means that the FAA does not give a federal court the authority to enforce arbitration agreements if they involve workers covered by the exemption. New Prime had argued that the arbitrator, not the court, should decide the question of whether the FAA applied.
On the issue of the applicability of the FAA, the First Circuit Court of Appeals agreed with the lower court and decided that a court must decide the threshold of question of whether or not the FAA applied to the dispute. It agreed with the reasoning of the Ninth Circuit Court of Appeals (California) in a analogous case and held that the applicability of the FAA is not an arbitrability or jurisdictional issue that an arbitrator can decide even if the parties have delegated those questions to the arbitrator. In re Van Dusen, 654 F.3d 838 (9th Cir. 2011). Rather, the First Circuit Court of Appeals held, a federal court cannot compel arbitration until it has first determined that the dispute is governed by the FAA. If it is not, the court would not have the authority to compel arbitration. In adopting this analysis, the First Circuit parted ways with the Eighth Circuit Court of Appeals, which had previously held that an arbitrator could decide the issue of the FAA’s reach when the parties to an arbitration agreement had delegated arbitrability and jurisdictional issues to the arbitrator. Green v. SuperShuttle Int’l, Inc., 653 F.3d 766 (8th Cir. 2011).
On the question of whether the FAA exemption in Section 1 applied to independent contractors who were transportation workers, the First Circuit found that the statutory term “contracts of employment” applied to anybody who performed work, including independent contractors. Therefore, the FAA exemption for “contracts of employment” of transportation workers applied to Mr. Oliveira and the FAA did not authorize the federal court to compel arbitration of the arbitration agreement he had signed with New Prime. The First Circuit’s decision upheld the lower court’s ruling that it did not have the authority to compel arbitration of the dispute pursuant to the FAA.
The appeals court’s decision specifically left open the question of whether New Prime could use a state statute to compel arbitration. The court stated: “We emphasize that our holding is limited: It applies only when arbitration is sought under the FAA, and it has no impact on other avenues (such as state law) by which a party may compel arbitration.” Many states have arbitration enforcement statutes that do not exempt contracts involving transportation workers. See e.g. NY CPLR §§ 7501-7503 (2018); Ca. Code Civ. Proc. §§ 1281, 1281.2 (2018). Whether or not those statutes’ applicability to transportation workers is preempted by the FAA’s exemption for transportation workers is an open question.
In taking the appeal, the Supreme Court will decide both questions the First Circuit decided. The case has been placed on the Supreme Court’s docket for its next term, which starts on the first Monday in October, 2018. Scotusblog provides a good analysis of the case as well as other background here.