“You Might Think Your Arbitration Is Confidential…But, In Delaware, The Court Will Decide”

Arbitration is intended to be private. Unlike a court trial, arbitration occurs in a conference room, with no right of the public to enter. Privacy, however, is different than confidentiality. Unless the parties have an agreement specifically providing that they cannot discuss what transpired, or publicly distribute the transcript or exhibits generated during the arbitration, what transpires in an arbitration room does not necessarily stay in the arbitration room.

Also, a party seeking to judicially confirm or vacate an arbitration award may find it helpful or necessary to include in their public filings copies of exhibits or transcript passages. Even if one or both parties desire that information to be sealed from public view, there is another voice–the judge–who is required to consider the public’s interest in transparency.

A recent example is presented by the Delaware Chancery Court’s decision in Soligenix, Inc. v. Emergent Prod. Dev. Gaithersburg, Inc., discussed in this article by Sidley attorneys Ana Blinder and Alex Kaplan.

“District Court upholds arbitration in website terms of use”

JD Supra has published this article, submitted by Orrick, Herrington, discussing the decision by the Western District of North Carolina in Granados v. LendingTree, LLC, holding that an a LendingTree customer, allegedly victimized by a cyber attack, must arbitrate his claims against the company. Upholding the recommendation of a Magistrate Judge, the court held that the company’s online Terms of Use provided sufficient notice to the plaintiff that claims would be subject to arbitration.

“New York Federal Court Allows Workers to Dodge Arbitration for Claims Brought With Sexual Harassment Case”

Melissa (Osipoff) Camire and Henry Thomson-Smith, of Fisher Phillips, have provided this article, discussing a pair of decisions issued by Judge Paul Engelmayer, who sits on the Southern District of New York. Addressing the recently enacted EFAA, which amended the Federal Arbitration Act by prohibiting employers from unilaterally enforcing arbitration agreement for disputes alleging sexual assault or harassment, the article notes that Judge Engelmayer found the statute–which uses the word “case” and not “claim”–serves to preclude arbitration of any cause of action asserted in a complaint alleging sexual harassment or discrimination.

However, in the other case, Judge Engelmayer, finding the allegations of sexual harassment to be insufficient to survive a motion to dismiss, determined that the EFAA did not serve to preclude arbitration of the other alleged claims.

The takeaway for the authors is that these decisions may encourage those with “plausible claims of sexual harassment” “to allege sexual harassment in order to avoid arbitration of other employment claims.”

For those interested, the cases are Johnson v. Everyrealm, Inc. and Yost v. Everyrealm, Inc.

Attempts To Contractually Alter Statutory Arbitration Rights And Limitations May Not Be Successful

The recent New Jersey Appellate Division’s decision in Strickland v. Foulke Management Corp. raises an interesting question of whether parties can contractually expand the scope of judicial review of an arbitration award beyond the minimal requirements of the Federal Arbitration Act (FAA).

In Strickland, the plaintiffs purchased a car, with documents that provided for arbitration, specifically stating that “[t]he Federal Arbitration Act applies to and governs this agreement with the exceptions provided for in this agreement,” and “[i]f any term of this agreement is unenforceable, the remaining terms of this agreement are severable and enforceable to the fullest extent permitted by law.”

The agreement also contained the following language:


Having been unsuccessful in the arbitration, the plaintiffs moved to vacate, arguing that the arbitrator’s award violated New Jersey law in various respects.

The Appellate Division rejected plaintiffs’ contention, holding that the parties’ agreement to apply the Federal Arbitration Act limited the grounds to vacate the arbitration award to those limited bases specified in the FAA. As a mistake of law is not one of the grounds for vacatur, the court determined that the award must be confirmed.

As to the parties’ agreement that an award could be reversed for non-compliance with New Jersey law, the court held that “[t]he FAA does not allow the parties to contractually expand judicial authority to review an award.” Consequently, the arbitration agreement’s purported expansion of the grounds of vacatur was clearly inconsistent with the FAA and, therefore, unenforceable.

The court’s decision in Strickland highlights an important point: as a trade off for arbitration’s ability to offer a faster and more cost-effective method of dispute resolution, it also comes with the potential loss of certain legal rights and protections.

Parties who are considering arbitration should be aware of the potential trade-offs and carefully review the arbitration agreement before signing. They should pay particular attention to any language that limits or expands the scope of judicial review, as this can have a significant impact on their ability to challenge an arbitration award in court.

“The Case for a Two-Arbitrator Panel”

Here’s an interesting take on the optimal size for an arbitration panel, at least in certain cases. This article by Gregory Parent of Miles Mediation & Arbitration, available at JD Supra, advocates for a two person panel as offering cost and time savings over the traditional multi-member panel of three, while suggesting that the panel’s desire to forge consensus advances the goal of avoiding the risk of a well-intentioned but perhaps misguided single arbitrator.

“Workers Did Not Have to Arbitrate Claims Arising Before They Signed Arbitration Agreements”

The California appellate decision in Vaughn v. Tesla Inc. is discussed by Joanne Deschenaux in this article found in SHRM. An employer hired workers who commenced their engagement through a staffing agency and, in connection with their new role as company employees, obtained their agreement to arbitrate disputes “arising from or relating to your employment.” When the employees joined a subsequently filed class action brought against the company, the company sought to compel arbitration of their claims. Because the allegations of the lawsuit encompassed the time during which they were performing services under the auspices of the staffing agency, the court bifurcated the arbitrability determination, holding that claims pertaining to conduct occurring prior to the date they became company employees did not “relate to” their employment and thus were not subject to arbitration.

Another Cautionary Tale For Those Drafting Arbitration Provisions

Kersten Kortbawi of Greenbaum Rowe has authored this informative article, discussing the New Jersey Appellate Division’s recent decision in County of Passaic v. Horizon Healthcare Services, Inc. Attorney Kortbawi posits that the court’s decision “fundamentally reshapes the interpretation of arbitration clauses in commercial contracts.”

Specifically, the court made a meaningful U-turn from a 2014 New Jersey Supreme Court decision, rendering unenforceable contractual arbitration provisions which fail to state that the contracting parties are waiving their right to pursue claims in a judicial forum. In Horizon Healthcare, the Appellate Division saved the arbitration provision (and the drafting attorneys) by distinguishing the case on the ground that the contracting parties were sophisticated commercial entities rather than “an employee or consumer lacking sufficient bargaining power to resist the extraction of an agreement to arbitrate.” While the language of Horizon Healthcare did not carve out this exception, the Appellate Division determined it was appropriate. One court taketh away, another court giveth.

For me, the larger takeaway from the court’s decision is reinforcement of the importance that drafting attorneys be knowledgeable about arbitration law and procedure. Absent the court creating a judicial carve out, the contracting party in Horizon Healthcare would have lost its expected right to arbitrate because the drafting attorneys failed to include the requisite “mother, may I” language. And, until created by the N.J. Supreme Court in its 2014 decision, there was nothing in pre-existing statutory or case law requiring this language.

Drafting attorneys, as they are wont to do, may copy and paste arbitration provisions from one contract to another, without in many cases having an understanding and appreciation that there can be surrounding law and legal developments that may make their chosen language unenforceable. And it simply is not realistic to expect that transactional attorneys who do not spend their days in the arbitration weeds will know of substantive changes made by legislatures or created by courts. Nonetheless, parties run the risk of having their expectations thwarted. Those drafting arbitration agreements who seek to avoid traps for the unwary should seek the input of their colleagues who devote their professional time to such matters.

“Plaintiffs Who Made Claims Based on Rights Under an Agreement Are Bound by the Agreement’s Arbitration Provisions”

In certain cases, a court may order a non-party to arbitrate a dispute when they are knowingly seeking to exploit the benefits of an agreement containing an arbitration clause. This is because the court recognizes that the non-party is aware of the provisions in such contracts and has chosen to take advantage of them. A recent example of this is the New York Supreme Court’s decision in Alma Management PTE Ltd. v. Shepard Towers LLC, summarized in this article by Attorney John Lundin.

“It’s a Family Affair: SCOTX Compels Non-Signatory Minor Children to Arbitrate Their Construction Defect Claims with Signatory Parents”

As discussed in this Lexology article by Ian Faria and Sydney Warren of Bradley Arant, the Texas Supreme Court has held that non-signatory minor children of a home purchaser are subject to the provisions of an arbitration agreement entered into between the purchaser and the home builder. Quoting the decision, the article notes the court’s holding that

“[W]hen a family unit resides in a home and sues for factually intertwined construction-defect claims concerning that home, a nonsignatory spouse and minor children have accepted direct benefits under the signatory spouse’s purchase agreement such that they may be compelled to arbitrate through direct-benefits estoppel. This is especially true given the special nature of marital and parent–child relationships.”

The authors note that the court’s determination “is a major victory for builders and contractors that, prior to these decisions, were left exposed to the prejudicial effects of defending against separate state court and arbitration lawsuits by multiple occupants of the same home, including inconsistent rulings by different fact finders; loss of the benefit of the bargain (e.g., mandatory agreement to arbitrate and contractual limitations on damages and claims); appellate remedies that otherwise would not be available in arbitration; and the potential double recovery.”