Supreme Court of the United States

Transcription

1 No. ================================================================ In The Supreme Court of the United States MARGARET A. QUINN, v. Petitioner, NAFTA TRADERS, INC., Respondent On Petition For A Writ Of Certiorari To The Supreme Court Of Texas PETITION FOR A WRIT OF CERTIORARI August 11, 2011 JANETTE JOHNSON LAW OFFICES OF JANETTE JOHNSON 2601 Wellborn Street Dallas, Texas (214) (214) (fax) jjohnesq@aol.com Counsel for Petitioner ================================================================ COCKLE LAW BRIEF PRINTING CO. (800) OR CALL COLLECT (402)

2 i QUESTIONS PRESENTED 1. Does preemption occur in a civil rights matter where a state decision relating to arbitral enforcement proceeds under substantially similar FAA and TAA statutes and where fundamentally inconsistent results may obtain if one ignores the FAA enforcement mechanisms and chooses to rely solely on state common law developed under the TAA? 2. Does the Supremacy Clause preempt this decision of the Texas Supreme Court, as it conflicts with Hall Street Associates, LLC v. Mattel, Inc., 128 S.Ct (2008)?

3 ii RULE 4.1(B) STATEMENT PARTIES The following were parties to all the proceedings below including those in The Supreme Court of Texas: 1. Margaret A. Quinn, Plaintiff; 2. Nafta Traders, Inc., Defendant.

4 iii TABLE OF CONTENTS Page QUESTIONS PRESENTED... i RULE 14.1(B) STATEMENT PARTIES... ii TABLE OF AUTHORITIES... v OPINIONS BELOW... 1 JURISDICTION... 1 STATUTORY PROVISIONS INVOLVED... 2 STATEMENT OF THE CASE... 3 STATUTORY FRAMEWORK... 3 FACTUAL BACKGROUND Facts Below The Texas Supreme Court Decision... 6 REASONS FOR GRANTING THE PETITION The Texas Supreme Court s Decision in Nafta Traders Conflicts with this Court s Decision in Hall Street Associates, LLC v. Mattel, Inc., 128 S.Ct (2008) As the Texas Supreme Court Recognized, the FAA is Applicable in State Court The Contrary Conclusion of the Texas Supreme Court is Preempted by the FAA The Split in the Court Decisions Shows that Contrary Holdings, Absent Clarification by the Supreme Court, Could Render Chaos to a Nationwide Arbitration Policy... 18

5 iv TABLE OF CONTENTS Continued Page 5. There is a Place for the Exception Language of Hall Street but it is Not as Broad or as Sweeping as the Texas Supreme Court Would Hold CONCLUSION APPENDIX Appendix A, Opinion of the Supreme Court of Texas, dated May 13, App. 1 Appendix B, Opinion of the Court of Appeals of Texas, dated June 17, App. 42

6 v TABLE OF AUTHORITIES Page FEDERAL CASES AT&T Mobility LLC v. Concepcion, 179 L.Ed.2d 742 (2011)... 14, 22 Allied-Bruce Terminix Cos. v. Dobson, 513 U.S. 265 (1995) Citigroup Global Markets Inc. v. Bacon, 562 F.3d 349 (5th Cir. 2009) Coffee Beanery, Ltd. v. WW, LLC, 399 Fed. Appx. 415 (6th Cir. 2008) Comedy Club, Inc. v. Improve West Associates, 553 F.3d 1277 (9th Cir. 2009) Doctor s Associates, Inc. v. Casarotto, 517 U.S. 681 (1996) Grain v. Trinity Health, 551 F.3d 374 (6th Cir. 2008) Hall Street Associates, LLC v. Mattel, Inc., 128 S. Ct (2008)... passim Hall Street Assocs., LLC v. Mattel, Inc., 113 Fed. Appx. 272 (9th Cir. 2004)... passim Hall Street Assocs., LLC v. Mattel, Inc., 196 Fed. Appx. 476 (9th Cir. 2006)... passim Hines v. Davidowitz, 312 U.S. 52 (1941) Mastrobuono v. Shearson Lehman Hutton, 514 U.S. 52 (1995) Perry v. Thomas, 482 U.S. 483 (1987)... 13

7 vi TABLE OF AUTHORITIES Continued Page Southland Corp. v. Keating, 465 U.S. 1 (1984)... 11, 12 Volt Information Sciences, Inc. v. Board of Trustees of Leland Stanford Junior University, 489 U.S. 468 (1989)... 11, 13 STATE CASES Barnett v. Hicks, 829 P.2d 1087 (Wash. 1992) Birmingham News Co. v. Horn, 901 So. 2d 27 (Ala. 2004) Brookfield Country Club, Inc. v. St. James- Brookfield, LLC, 696 S.E.2d 663 (Ga. 2010) Cable Connection, Inc. v. DIRECTTV, Inc., 190 P.3d 586 (2008)... 21, 22, 23, 24 Dick v. Dick, 534 N.W.2d 185 (Mich. Ct. App. 1995) HL 1, LLC v. Riverwalk, LLC, 15 A.3d 725 (Me. 2011) John T. Jones Construction Co. v. City of Grand Forks, 665 N.W.2d 698 (N.D. 2003) LCI, Inc. v. Chipman, 572 N.W.2d 158 (Iowa 1997) Nafta Traders, Inc. v. Quinn, No , 2011 Tex. LEXIS (Tex. May 13, 2011)... passim Oncharsh v. Heity & Blase, 832 P.2d 899 (Cal. 1992)... 23

8 vii TABLE OF AUTHORITIES Continued Page In re Poly-America L.P., 262 S.W.3d 337 (Tex. 2008) Pugh s Lawn Landscape Co. v. Jaycon Development Corp., 320 S.W.3d 252 (Tenn. 2010) Quinn v. Nafta Traders, Inc., 257 S.W.3d 795 (Tex. App. Dallas 2008, pet. granted)... 1, 6, 20, 21, 24 Raymond James Fin. Servs., Inc. v. Honea, 55 So. 3d 1161 (Ala. 2010) Tombetta v. Raymond James Finance Services Inc., 907 A.2d 550 (Pa. Super. Ct. 2006) FEDERAL STATUTES 9 U.S.C. 2 (2006)... passim 9 U.S.C. 9 (2006)... 2, 3, 12, 17 9 U.S.C passim 9 U.S.C , 3, 10, U.S.C Federal Arbitration Act ( FAA ), 9 U.S.C. 1, et seq.... passim STATE STATUTES TEX. CIV. PRAC. & REM. CODE (a)... 2 TEX. CIV. PRAC. & REM. CODE (a)... 2

9 viii TABLE OF AUTHORITIES Continued Page LAW REVIEW NOTES AND ARTICLES Burns, Note: Freedom, Finality, and Federal Preemption: Seeking Expanded Judicial Review of Arbitration Awards Under State Law After Hall Street, Fordham Law Review, Vol. 78 p (2010)... 17, 18, 28, 29 Murphy, Note: Judicial Review of Arbitration Awards Under State Law, Virginia Law Review, Vol. 96 p. 887 (2010)... 28

10 1 PETITION FOR A WRIT OF CERTIORARI Margaret A. Quinn ( Petitioner ) respectfully petitions for a writ of certiorari to review the judgment of the Supreme Court of Texas OPINIONS BELOW On May 13, 2011, the Texas Supreme Court, issued its decision in Nafta Traders, Inc. v. Quinn, No , 2011 Tex. LEXIS (Tex. May 13, 2011) (Appendix A). In that decision, the Texas Supreme Court reversed the judgment of the court of appeals, Quinn v. Nafta Traders, Inc., 257 S.W.3d 795, 797 (Tex. App. Dallas 2008, pet. granted) (Appendix B). As to the prior decisions, the Arbitrator issued his decision of August 2006, specifically finding sex discrimination. That decision was enforced by two state district court judges in unpublished decisions and was appealed to the Fifth District Court of Appeals at Dallas JURISDICTION The Texas Supreme Court issued its opinion on May 13, This Court has jurisdiction under 28 U.S.C to review the Texas State Supreme Court s decision on a writ of certiorari as that opinion decided an important federal question in a way that conflicts with relevant decisions of this Court, specifically, Hall Street Associates, LLC v. Mattel, Inc., 128

11 2 S.Ct (2008). Further, the State Supreme Court has decided an important question of federal law that has not been, but should be, settled by this Court, that is the exception language noted in the Hall Street opinion. Further, the State Supreme Court has decided an important question of federal law in a way that conflicts with the decisions of other state courts of last resort and which could cause a fracturing of the federal arbitration framework STATUTORY PROVISIONS INVOLVED Federal Arbitration Act ( FAA ), 9 U.S.C. 1, et seq., specifically including: a. 9 U.S.C. 2 b. 9 U.S.C. 9 Appendix A, 12. c. 9 U.S.C. 10 Appendix A, 11. d. 9 U.S.C. 11 Appendix A, Texas General Arbitration Act ( TAA ), and specifically: TEX. CIV. PRAC. & REM. CODE (a); (specific grounds for vacatur) Appendix A, 8-9. TEX. CIV. PRAC. & REM. CODE (a); (specific grounds for modifying or correcting) Appendix A,

12 3 STATEMENT OF THE CASE This case involves a decision by the Texas Supreme Court holding that it can enforce the parties judicial enforcement mechanism in a civil rights enforcement action even though there are no specific enforcement mechanisms in the state statute, the Texas General Arbitration Act, (the TAA ), and even though utilization of such enforcement mechanisms are not found in the Federal Arbitration Act, (the FAA ), and conflict with the FAA. The decision of the Texas Supreme Court conflicts with this Court s decision in Hall Street Associates, LLC v. Mattel, Inc., 128 S.Ct (2008), and does not fall within the exception language noted in that decision, Id. at Moreover, such nonstatutory enforcement mechanism is preempted by the FAA as there is a clear conflict between the well established enforcement mechanism under the FAA and the newly created state court right to full judicial appellate review at the state district court level with possible vacatur for reasons not encompassed under either the FAA or the TAA but created by the Texas Supreme Court STATUTORY FRAMEWORK The statutory framework of this case is the interplay between sections 2, 9, 10 and 11 of the

13 4 Federal Arbitration Act and the provisions of the Texas General Arbitration Act FACTUAL BACKGROUND 1. Facts Below: Margaret Peggy Quinn filed a sex discrimination charge after having been subjected to sex discrimination and ultimately discharged in 2004 from Nafta Traders, a company engaged in the sale and distribution of used and new tennis shoes and apparel. At the arbitration hearing, she presented ample evidence of sex discrimination including differing treatment as to the female employees as well as severe credibility issues surrounding the testimony of the discharging official, Chief Operating Officer Ken Holbrook, whose credibility was severely impeached at the arbitral hearing. In the Arbitrator s decision of August 2006, the Arbitrator specifically found sex discrimination, inter alia, that: COO Holbrook was consulted about Quinn being terminated, and Nafta Trader s owner relied on his advice; Holbrook denied or did not recall much of the sexually based conduct attributed to him. He stated more than 90 times he did not recall various events. Holbrook was not a credible witness;

14 5 Quinn was the only manager let go in January 2004, while other, more highly paid male managers, were retained and she was replaced by a male; Holbrooks treatment of other women in the workforce and denigration of other females constituted some evidence of his negative attitude toward the women he supervised; when Quinn confronted Holbrook about sex discriminatory bias and his sexually inappropriate behavior, he told her she could hit the door. Nafta Traders s proffered basis for the decision as a cost saving measure was not credible, including due to retention of male counterparts; Quinn s termination was based on her sex. In the Fall of 2006 Quinn filed a motion to confirm the award and Nafta Traders filed a motion to vacate or modify the award. On December 29, 2006, the district court confirmed the award of the arbitrator. On January 11, 2007, the district court entered final judgment and on February 16, 2007, denied Nafta Trader s Motion for New Trial. During the course of the enforcement proceedings, state district court judge Nancy Thomas was replaced by state district court judge Jim Jordan. Both judges gave Nafta ample opportunity to brief its positions and present oral argument to the Court. Both district court judges rejected Nafta Trader s arguments.

15 6 Upon appeal to the Fifth District Court of Appeals at Dallas, that court issued its Opinion and Judgment, affirming the district court and thereby affirming the Arbitrator s award for damages based on sex discrimination. Quinn v. Nafta Traders, Inc., 257 S.W.3d 795, 797 (Tex. App. Dallas 2008, pet. granted) (Appendix B). Appeal to the Texas Supreme Court ensued, whose decision, issued May 13, 2011, is at issue herein (Appendix A). 2. The Texas Supreme Court Decision: On May 13, 2011, the Texas Supreme Court issued its opinion. It held that the TAA does not preclude a party drafting an agreement for judicial review of an arbitration award for reversible error. It further held that the FAA does not preempt enforcement of such an agreement. It thus reversed the judgment of the court of appeals which had interpreted the TAA consonant with the FAA and remanded the case to that court for further proceedings. (Appendix A, 2). In so doing, it held that since the parties had inserted an appellate review standard in their agreement, to the extent that the arbitrator did not follow such agreement, he exceeded his authority under the TAA thus raising a ground to vacate the award. (Appendix A, 11). 1 1 While the Texas Supreme Court consistently refers to the parties agreement, this was an agreement drafted by Nafta Traders with no input from its employees and then imposed on said employees unilaterally.

16 7 The Court further examined the FAA and its consistency with the TAA as well as this Court s decision in Hall Street. It holds that this Court s analysis of the FAA in Hall Street does not provide a persuasive basis for construing the TAA the same way as the FAA. However, in contravening this Court, it does so with great respect to this Court. (Appendix A, 21). Accordingly, it construes the TAA differently than the FAA finding a Texas public policy to enforce contracts predominates over the FAA and its enforcement mechanism. This contract having an appellate review standard, it seeks to require the implementation of that review standard, even though such implementation may conflict with the FAA as the court finds nothing in the TAA at odds with this policy. (Appendix A, 21). It then analyzes the review standard and the state of the record. It further opines that Rules 33 and 34 of the Texas Rules of Civil Procedure, although recognizing that they were not written for appeals from arbitration awards, nevertheless should govern such appeals. (Appendix A, 36, n. 80)

17 8 REASONS FOR GRANTING THE PETITION 1. The Texas Supreme Court s Decision in Nafta Traders Conflicts with this Court s decision in Hall Street Associates, LLC v. Mattel, Inc., 128 S.Ct (2008): In Hall Street Associates, LLC v. Mattel, Inc., 128 S.Ct (2008) this Honorable Court held under the FAA that the parties could not contractually expand the legal grounds available for vacating an arbitration award. The Hall case involved an appellate review standard crafted post-dispute for a case that had been filed in federal court. 2 After the arbitrator rendered the award, the losing party moved to vacate, arguing the extra statutory ground of an erroneous conclusion of law. The case bounced between the district and appellate courts with various results depending upon whether application of that extra judicial but contractually inserted standard of review was utilized. 3 When decided by this Court, however, this Court held conclusively that the grounds listed in Sections 10 and 11 of 2 In Hall Street, the review standard in the parties agreement allowed a district court to set aside an arbitrator s award if (1) the arbitrator s findings of facts are not supported by substantial evidence, or (2) where the arbitrator s conclusions of law are erroneous. Id. at See explanation of review history, id. at See also, Hall Street Assocs., LLC v. Mattel, Inc., 113 Fed. Appx. 272, 273 (9th Cir. 2004); Hall Street Assocs., LLC v. Mattel, Inc., 196 Fed. Appx. 476, (9th Cir. 2006).

18 9 the FAA for vacating or modifying an award are exclusive and cannot be expanded by the parties arbitration agreement under the FAA. Id. at As this Court noted, this limited ruling not only is consistent with the statutory text of the FAA it encourages arbitration awards. Thus as this Court noted: Instead of fighting the text, it makes more sense to see the three provisions 9-11, as substantiating a national policy favoring arbitration with just the limited review needed to maintain arbitration s essential virtue of resolving disputes straightaway. Any other reading opens the door to the full-bore legal and evidentiary appeals that can rende[r] informal arbitration merely a prelude to a more cumbersome and time-consuming judicial review process, and bring arbitration theory to grief in post arbitration process. Id. at 1405 (citations omitted). There is troublesome language, however, in this Court s Hall Street decision at issue herein, the exception language. As dicta, it may represent inchoate thoughts not necessary to the ruling at hand. Unfortunately, however, if not adequately curtailed, this dicta may raise the specter of state courts eviscerating the enforcement mechanism of the FAA in joint FAA/state court enforcement actions in each and every arbitration proceeding, regardless of the type of arbitration, the complexity of the issues, the sophistication of the parties or the clarity of the

19 10 parties previously manifested intent. Petitioner respectfully suggests that this is not what this Court intended by the exception language. Thus, this Court s Hall Street dicta provides that: In holding that 10 and 11 provide exclusive regimes for the review provided by the statute, we do not purport to say that they exclude more searching review based on authority outside the statute as well. The FAA is not the only way into court for parties wanting review of arbitration awards: they may contemplate enforcement under state statutory or common law, for example, where judicial review of different scope is arguable. But here we speak only to the scope of the expeditious judicial review under 9, 10 and 11, deciding nothing about other possible avenues for judicial enforcement of arbitration awards. Id. at Without a careful crafting of this very limited exception, this language is in danger of engulfing and eviscerating this Court s decision. Petitioner Quinn respectfully suggests that is exactly what the Texas Supreme Court has done in Nafta Traders by crafting a legislative pronouncement from the bench that it will allow the parties to create their own legal review standard in each and every arbitration case, even those such as the instant case jointly proceeding under the FAA and the TAA. It does so even though there is no statutory grounds for reversal under either the federal or the state arbitral law.

20 11 The Texas Supreme Court, taking a dig at this Court, further asserts that with great respect to the United States Supreme Court, [W]e are unable to conclude that Hall Street s analysis of the FAA provides a persuasive basis for construing the TAA the same way. (Id. at 8.) 2. As the Texas Supreme Court Recognized, the FAA is Applicable in State Court: As the Texas Supreme Court recognized, this case proceeded under both the FAA and the TAA. This can be done. However, in proceeding under the TAA or under a private contractual agreement, such agreements cannot overrule the Supremacy Clause. This Court has conclusively held that the FAA is applicable in state court in cases that involve interstate commerce. See Southland Corp. v. Keating, 465 U.S. 1, 16 (1984). Thus, in order to agree to state court enforcement, in a case where the FAA is also applicable, the parties must sufficiently express their intent to apply state arbitration law and those provisions of the state statute must not conflict with the proarbitration policies underlying the FAA. Mastrobuono v. Shearson Lehman Hutton, 514 U.S. 52, (1995); Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, (1989). Further, in Southland, this Court rejected the proposition that the FAA was strictly procedural in nature. Id. at This Court further held in Southland, that a substantive right to enforcement

21 12 cannot depend entirely on which court state or federal enforcement is sought as such a result would encourage forum shopping. Id. at 15. Implicitly it would also encourage fracturing of the arbitral case law. This Court further confirmed that the FAA extended to state court arbitral enforcements. Allied- Bruce Terminix Cos. v. Dobson, 513 U.S. 265, 274 (1995). Indeed, in the instant case, Nafta Traders brought its original action under the FAA and the TAA, (Appendix A, 4). The Court acknowledged at oral argument that the parties had taken differing positions with respect to the applicability of the FAA and the TAA during this proceeding. (Appendix A, 6, n. 13). Section 2 of the FAA, 9 U.S.C. 2 (2006) holds that arbitration agreements be held valid, irrevocable, and enforceable save upon such grounds as exist at law or in equity for the revocation of any contract. The enforcement mechanism is set forth in Sections 9-11 of the statute. Any attempt at an extra statutory enforcement mechanism has the ability to prevent enforcement of the arbitral agreement. It also requires the enmeshment of the judicial and arbitral systems to an unnecessary degree. Section 9 of the FAA, 9 U.S.C. 9 (2006), provides that a court must grant such an order unless the award is vacated, modified, or corrected as prescribed in sections 10 and 11 of this title.

22 13 Section 10 provides four limited grounds for vacatur. 4 The enforcement mechanism of the FAA controls as the FAA preempts state court holdings inconsistent with the FAA as interpreted. Thus, conflict preemption or obstacle preemption is applicable where an award would clearly be enforced under the FAA. Volt Info. Scis., Inc. v. Bd. of Trs. of Leland Stanford Junior Univ., 489 U.S. 468, 477 (1989). Conflict or obstacle prevention prevents a state law from stand[ing] as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress. Hines v. Davidowitz, 312 U.S. 52, 57 (1941). In Perry v. Thomas, 482 U.S. 483 (1987), conflict preemption has been applied to prevent judicial access in contravention of an arbitration agreement. It has also been applied to strike down a Montana law that attempted to impose additional burdens on arbitration 4 Those grounds are set forth in Nafta Traders (Appendix A, 11, n. 28): (1) where the award was procured by corruption, fraud, or undue means; (2) where there was evident partiality or corruption in the arbitrators, or either of them; (3) where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced; or (4) where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made. 9 U.S.C. 10 (2006).

23 14 agreements. See Doctor s Associates, Inc. v. Casarotto, 517 U.S. 681 (1996). Recently this Court struck down the denial of enforcement of a single consumer arbitration proceeding by the California court. That court had ruled against the enforcement where the parties contract contained a waiver of collective arbitration that prevented class action arbitration. This Court noted that such a ruling by California denying arbitration was preempted by the FAA under the obstacle preemption doctrine. See AT&T Mobility LLC v. Concepcion, 179 L.Ed.2d 742 (2011). This Court held that allowing such a provision as it stands was an obstacle to the accomplishment and execution of the full purposes and objectives of Congress under Section 2 of the FAA. As this Court noted: Although 2 s savings clause preserves generally applicable contract defenses, nothing in it suggests an intent to preserve statelaw rules that stand as an obstacle to the accomplishment of the FAA s objectives. [citations omitted.] As we have said, a federal statute s saving clause cannot in reason be construed as [allowing] a common law right, the continued existence of which would be absolutely inconsistent with the provisions of the act. In other words, the act cannot be held to destroy itself. [citations omitted.] Id. at 753.

24 15 A state law interpreted to permit contractually expanded review in almost every situation almost certainly stands as an obstacle to FAA enforcement. Where the parties have provided for expanded review by a mere stroke of the pen, application of a state law permitting such review would result in potential vacatur, whereas application of 10 would result in confirmation. Thus, the state law may well prevent a party from enforcing an award whereas the FAA would require it. Indeed, finality of the award is one of the few saving graces of arbitration, especially where, as here arbitration has been unilaterally implemented by an employer against the judicial enforcement rights of the employee. Thus, having been forced into the arbitral forum by unilateral implementation of an arbitration provision, an employee at least knows that finality is around the corner. As the Supreme Court of Iowa has noted, A refined quality of justice is not the goal in arbitration matters. Indeed such a goal is deliberately sacrificed in favor of a sure and speedy resolution. LCI, Inc. v. Chipman, 572 N.W. 2d 158, 162 (Iowa 1997) (citation omitted). In essence such a final resolution prevents Monday morning quarter backing that can occur when a losing party obtains new counsel, as here, or where the non-prevailing party simply wants another bite at the apple.

25 16 3. The Contrary Conclusion of the Texas Supreme Court is Preempted by the FAA: Under the FAA, it is clear that the decision of the Arbitrator herein should be enforced as the Respondent implicated none of the four FAA criteria for overturning an arbitral award, nor could he, for the parties jointly selected Edward Cloutman, a well respected Dallas arbitrator and a member of the American Arbitration Association, with over thirtyfive years of legal experience in the labor and employment field. Further, there was not a hint of impropriety with the Arbitrator or his decision nor were there any other legal grounds for vacatur under the FAA. Thus, the finality provisions for this award should have been enforced in early 2007 at which time two separate district court judges had given finality to this arbitration decision. Prior to the exception language of Hall Street, the TAA would have mandated the same result as it is substantially similar. 5 However, where as here, the State Supreme Court has judicially crafted a common law exception that, without benefit of statutory construction of the TAA, holds that that law permits contractually expanded review, conflict almost certainly arises. The 5 The vacatur, modification or correction standards under the TAA are substantially similar to those of the FAA and are set forth in Nafta Traders (Appendix A, 8-9, n ).

26 17 Petitioner respectfully suggests that where a provision of a state law decision fundamentally collides with the enforcement mechanisms of the FAA, than the FAA preempts the state law decision, as the FAA provision is substantive, rather than procedural. In a cogent analysis by Burns, in his Note: Freedom, Finality, and Federal Preemption: Seeking Expanded Judicial Review of Arbitration Awards Under State Law After Hall Street, Fordham Law Review, Vol. 78 p (2010), the author notes: Section 2 defines the allocation of authority at the front end of the arbitration process. It determines that when the parties have agreed to arbitrate, the arbitrators not the courts will have the authority to decide the dispute. In doing so, 2 is considered substantive and therefore preempts state laws that attempt to tip this allocation of authority in favor of the courts. Similarly 10 and vacatur laws in general define the allocation of authority at the back end of the arbitration process. Sections 9 and 10 provide that when parties have agreed that the arbitration award will be final and binding, the arbitrators and not the courts will have the authority to make the final award. Laws that provide broad grounds for review tip the allocation of this authority to make the final decision out of the arbitrators hands and put it into the courts, thus allowing the parties to escap[e] the arbitration bargain. An appropriate narrow vacatur provision is thus essential to the enforcement of arbitration

27 18 agreements. Section 10 plays just that role in upholding 2 s command of enforcement. As such, 10 is best characterized as a substantive provision of federal arbitration law. Id. at Any other reading would eviscerate the enforcement mechanisms of the FAA and even in cases where as here the Texas Supreme Court has clearly recognized that the FAA also applies, the FAA enforcement provisions would be held hostage to state court interpretations of various contractual legal standards and the state arbitral law here the TAA as interpreted would trump the FAA. 4. The Split in the Court Decisions Shows that Contrary Holdings, Absent Clarification by the Supreme Court, Could Render Chaos to a Nationwide Arbitration Policy: Texas has now made a clear pronouncement that with one stroke of the pen, all Texas drafters of an arbitration award can avoid the FAA in all employment related circumstances. 6 Indeed, in most 6 In Texas, in the employment arena, these pre-dispute arbitral provisions are unilateral pronouncements of an employer. Once employed, and once the arbitral provision is clearly expressed and communicated to the employee, there is little the employee can do to escape such an arbitration agreement. See, In re Poly-America L.P., 262 S.W. 3d 337, 348 (Tex. 2008).

28 19 circumstances. While the Texas Supreme Court notes that the courts will be careful to enforce only judicious review standards, that pronouncement is far more lenient than federal jurisprudence which has rejected the application of an even more stringent judicial standard, that of manifest disregard. 7 Thus, while there is no provision in the TAA that expressly provides for additional enforcement mechanisms, the Texas Supreme Court would judicially craft one and enmesh the state judicial system in intricate appellate enforcement actions to enforce essentially private judicial proceedings. Thus, where as here there is a transcript, the Texas State Supreme Court would suggest that the TAA but not the FAA would require a public district trial court to engage in a full appellate review of the transcript and require the parties to engage in full scale appellate briefing of the arbitral decision. This is the antithesis of a quick judicial proceeding. 7 Indeed this Honorable Court has denied certiorari to delineate the contours of enforcement of arbitration decisions in manifest disregard of the law. See Comedy Club, Inc. v. Improve West Assocs., 553 F.3d 1277 (9th Cir. 2009); Grain v. Trinity Health, 551 F.3d 374 (6th Cir. 2008) and Coffee Beanery, Ltd. v. WW, LLC, 399 Fed. Appx. 415 (6th Cir. 2008). And, while the circuit courts have varied in their interpretation of the extra statutory review standard of manifest disregard, the United States Court of Appeals for the Fifth Circuit has clearly held that manifest disregard of the law as an independent, nonstatutory legal standard is not an appropriate ground for reversal. Citigroup Global Markets Inc. v. Bacon, 562 F.3d 349, 350 (5th Cir. 2009).

29 20 There is no greater evidence that the Texas Supreme Court has engaged in extra judicial rule making in contravention of the requirements of 2 and 10 of the FAA as the following statement in the Quinn decision: An arbitration award is not susceptible to full judicial review merely because the parties have agreed. A court [the trial court confirming or vacating the award] must have a sufficient record of the arbitral proceedings, and complaints must have been preserved, all as if the award were a court judgment on appeal. For efficiency s sake, arbitration proceedings are often informal; procedural rules are relaxed, rules of evidence are not followed, and no record is made. These aspects of arbitration, which are key to reducing costs and delay in resolving disputes, must fall casualty to the requirements for full judicial review. The parties can decide for themselves whether the benefits are worth the additional cost and delay, but the only review to which they can agree is the kind of review courts conduct. If error cannot be demonstrated, an award must be presumed correct. The Court further states: By the same token, arbitration parties cannot agree to a different standard of judicial review than the court would employ in a judicial proceeding involving the same subject matter. (Appendix A, 37).

30 21 The Court goes further, stating (Appendix A, 36, n. 80) that: In appeals from judicial proceedings, the requirements for preserving complaints and for the record are set out, respectively, in Rules 33 and 34 of the Texas Rules of Civil Procedure. Although these rules are not written for appeals from arbitration awards, their principles should govern such appeals. In these holdings, it is clear that the Texas State Supreme Court has strayed far afield from the FAA and has even strayed far afield from the TAA. Instead it is creating a new judicial right for litigants in Texas courts unbridled by federal or state statutory constraints. It is then suggesting applicable appellate rules for the litigants to follow. This, Quinn respectfully submits, it cannot do, for such flights of judicial craftsmanship are reserved to rule making bodies in the first instance and federal rule making bodies in the second if we are to have a nationwide system of arbitration. Anything to the contrary threatens to turn arbitration into nothing more than a precursor to litigation and extensive litigation at that. Quite simply, this rule-making is preempted by the FAA which already has long established rules in place. So too, in Cable Connection, Inc. v. DIRECTTV, Inc., 190 P.3d 586 (2008), the California Supreme Court confirmed the contracting parties right to use California contract law to create a right to judicial review of arbitration awards.

31 22 Cable Connection involved two issues: (1) May the parties structure their agreement to allow for judicial review of legal error in the arbitration award? (2) Is class wide arbitration available under an agreement that is silent on the matter? The California Supreme Court remanded the decision to the lower court for redetermination of the class wide arbitration issue. However, in light of this Court s recent decision in AT&T Mobility LLC v. Concepcion, 179 L.Ed.2d 742 (2011) prohibiting class action arbitrations as interfering with 10 of the FAA limiting the grounds on which courts can vacate awards, one questions the continued viability of the Cable Connection decision in its entirety. Further, in Cable Connection, the case involved a pure commercial dispute rather than a civil rights action. In enforcing the extra statutory review procedure, the California Court noted that The desire for the protection afforded by review for legal error has evidently developed from the experience of sophisticated parties in high stakes cases, where the arbitrators awards deviated from the parties expectations in startling ways. (citations omitted). Id. at 606. Of course, that type of high stakes litigation is not evident in this standard employment dispute. Secondly, the California Supreme Court noted the long history of state arbitral review and the specific

32 23 study by the California Law Revision Commission undertaken at the Legislature s direction. 8 The California Court also relied on a prior decision, Oncharsh v. Heity & Blase, 832 P.2d 899 (Cal. 1992) as well as the legislative history of its statute to support its holding. Id. at So too, the parties did not specify in their contract whether enforcement proceedings were to be brought in state or federal court. The Court proceeded to rule that the arbitration was conducted under the California arbitrations statute because the petition to vacate in Cable Connection was filed, argued, and appealed in state court, and before the Hall Street decision both parties proceeded on the theory that the CAA was controlling. Id. at 597. In such circumstances, it noted that California law applied and concomitantly Sections 9 and 10 of the FAA do not necessarily apply to preempt state law. Further, it allowed that policies allowed for predictability in the business world. Importantly, there appears to have been no further appeal to the California Court s analysis of the applicability of the FAA as no petition for certiorari was apparently filed. These same arguments, already undercut in California by the refusal of this Court to grant the substantive California law provisions in a class action arbitration appears sui generis to a state with a protracted history of arbitration 8 The arbitration study was conducted in 1960 [Arbitration Study, 3 Cal. Law Revision Com. Rep.].

33 24 disputes. Further, this decision does not apply in the civil rights context. However, it is clear that the agreement in this case is not merely a commercial dispute between two business parties. In contrast to the unique California position, embedded by years of substantive law but already being undercut by this Court on a preemption basis, other than Texas, the only other state that appears, without benefit of statute, to have whole-heartedly embraced the exception language of Hall Street is Alabama. Taking such an exception as carte blanche permission to craft new law on a tabula rosa, the Alabama State Supreme Court reversed itself in midstream. Thus, in Raymond James Fin. Servs., Inc. v. Honea, 55 So. 3d 1161, 1170 (Ala. 2010), relied upon in the Quinn decision, n. 62, the Alabama court held that it had the power to order de novo review of an arbitrator s decision even though it had previously held in Birmingham that it was bound by 10 the FAA. See Birmingham News Co. v. Horn, 901 So.2d 27, 46 (Ala. 2004). The Raymond James decision, however, is not only not dispositive in the instant case, it further points to the mischief that can ensue if the exception language of Hall is taken literally as carte blanche permission to ignore the FAA. In Raymond James involving the arbitration of an investor against a securities brokerage firm, the investor lost her claims and moved to vacate the arbitration award and additionally filed for de novo review in state district court. The parties, apparently with little forethought and no discussion in the

34 25 decision, had crafted a de novo review standard in its arbitration agreement. In other words, the arbitral loser sought to enmesh the state district court in a full review of the entire transcript and exhibit record and to require the state district court to make entirely new findings of facts and conclusions of law without having heard the witnesses or assessed their credibility. The Alabama court, holding that the exception language of Hall allowed it to do so, required the state court to engage in and abide by its contract and hold such a de novo review. There was no extensive discussion of preemption of such proceedings by the FAA other than its assumption that 10 represents procedural rather than substantive law and that the Alabama court was now free to impose an entirely unreasonable requirement on the state district court merely because the parties had contracted for the court to do so. In contrast, there are a host of states many before Hall Street that simply refuse to engraft state review provisions onto its statutes by means of judicial fiat. As noted in n. 62 of the Texas Supreme Court s Nafta Traders decision, the following states have so refused to agree to expanded judicial review: Brookfield Country Club, Inc. v. St. James-Brookfield, LLC, 696 S.E.2d 663, 667 (Ga. 2010); HL 1, LLC v. Riverwalk, LLC, 15 A.3d 725, 736 (Me. 2011); John T. Jones Constr. Co. v. City of Grand Forks, 665 N.W.2d 698, 704 (N.D. 2003); Pugh s Lawn Landscape Co. v. Jaycon Dev. Corp., 320 S.W.3d 252, 261 (Tenn. 2010); Barnett v. Hicks, 829 P.2d 1087, 1095 (Wash. 1992);

35 26 see also Dick v. Dick, 534 N.W. 2d 185, (Mich. Ct. App. 1995); Tombetta v. Raymond James Fin. Servs. Inc., 907 A.2d 550, 576 (Pa. Super. Ct. 2006). As noted with this sampling, absent a definitive decision by this Court, the states stand in jeopardy of fracturing the federal arbitration law by various degrees of appellate involvement of its state trial judges in unrelated private arbitral proceedings. 5. There is a Place for the Exception Language of Hall Street but it is Not as Broad or Sweeping as the Texas Supreme Court Would Hold: Admittedly this is a complicated area fraught with strong but competing public policy considerations and a patchwork quilt of federal preemption doctrines. However, the Texas Supreme Court ruling totally eviscerates the holding of Hall Street stating that as a State it can go and chooses to go a different way than the federal court system in each and every case in which the parties insert a review standard in a Texas arbitration agreement. It asserts that with great respect to the United States Supreme Court, it can do so regardless of the federal law in this area. (Appendix A, 21). Petitioner first suggests that the Supremacy Clause will not allow the Texas court to do this. She then suggests that there is a place for the Hall Street exception language but the exception must be narrowly construed and this case does not present such a narrowly construed exception.

36 27 It is for this Court to delineate the exceptions encompassed by the exceptions language. There are, of course, several exceptions that may come to mind depending upon the rulings of this Court. The initial exception might be a post dispute agreement of the parties under a specific state arbitration provision. In such circumstances the parties have a general assessment of the contours of the dispute and each side has engaged lawyers with the expertise to craft a legal standard tailored to the dispute and that avoids the preemptive draw of the FAA. The second case may be one where the parties might be enmeshed in a patent or engineering dispute and while they have secured the technical expertise of a private judge or arbitrator knowledgeable in the field, they jointly agree to subsequent legal review, again in a manner that clearly enunciates that it is avoiding the preemptive draw of the FAA. The third case might be one where a particular state legislature has either crafted its state statute to specifically enumerate an enforcement mechanism different than that of the FAA or where, at the least, as in California, there is a long history of legislative study and decisions supporting an independent review statute or where there is frequent high stakes litigation. The next case might be where the parties remain in the arbitral forum and carefully refrain from enmeshing themselves within the court system. This possibility would satisfy the parties need for

37 28 appellate consistency but would prevent enmeshment of the district courts by allowance of appellate review by a second arbitrator or a panel of arbitrators. This would keep both judicial avenues distinct. This is the avenue suggested by one commentator, 9 Murphy, Note: Judicial Review of Arbitration Awards Under State Law, Virginia Law Review, Vol. 96 p. 887 (2010). In such case, the parties can craft an arbitral review provision that satisfies the asserted need for a second look but does not engage a busy state court trial judge in full scale appellate review of an arbitration hearing whether four days or thirty days in which he was not present. After all, by utilizing arbitration, the parties have conclusively opted out of the judicial arena. It is certainly fair to hold them to that bargain to stay out of that judicial arena in all but the most limited of circumstances. The last provision is one suggested by Burns, in his Note: Freedom, Finality, and Federal Preemption: Seeking Expanded Judicial Review of Arbitration Awards Under State Law After Hall Street, Fordham Law Review, Vol. 78 p (2010), in which the author notes: 9 As the commentator noted, Id. at 935, the American Arbitration Association ( AAA ) provides an example of such a clause, which can be tailored to fit the appellate review desired by the parties. See American Arbitration Association, Drafting Dispute Resolution Clauses: A Practical Guide 37 (amended September 1, 2007).

38 29 If such contractual provisions are to be enforced, they should clearly express the parties unambiguous intent that an entire body of state arbitration law will apply to the full exclusion of the FAA. Anything else should result in preemption. As he further notes: The reasoning set forth above does not eviscerate Hall Street s holding. It is narrow enough, and places enough potential burdens upon parties, to make it meaningfully different from the private contractual review provision struck down in Hall Street. It aims to preserve arbitration s value of finality as articulated in Hall Street while recognizing party autonomy to shape the dispute resolution process. Its key point is that, in order to obtain expanded review, the parties must agree that the entire body of state arbitration law must apply to the full exclusion of the FAA. A mix and match approach should be preempted.... A contrary conclusion would render Hall Street s holding meaningless. Thus, there must be a tradeoff. Hall Street imagined the FAA s limited review provisions as a tradeoff for its expedited treatment of award confirmation proceedings. Id. at Of course, Nafta Traders did none of the above and as such, Quinn respectfully suggests that its arbitral decision is preempted. Indeed, Nafta Traders initially sought enforcement under the FAA. It presented a case to the court of no unusual complexity.

39 30 It did not craft a review provision providing for a private arbitral review forum but rather sought to enmesh the state court system in its dispute by means of an involved appellate procedure. Of course this is the very state court system it rejected when it crafted the arbitration provision seeking to evade the jury and judge system its employees would have otherwise enjoyed. And, the parties together did not conclusively establish that the FAA enforcement mechanisms were to be wholly avoided, indeed at various times they proceeded under one or the other statutes. Nafta Traders as the losing party cannot now return to the court it had originally attempted to evade merely because it no longer likes the arbitral decision rendered. Such a result is contrary to the enforcement mechanism of the FAA and accordingly is preempted. In such circumstances, Petitioner respectfully asserts that the FAA and the TAA were enmeshed herein and the Court cannot give credence to the public policy and enforcement concerns of one without violence to the other. In balance, the scale must tip to the Federal scheme and preemption occurs CONCLUSION As noted, there is a division in the state courts with most adhering to the traditional view that the FAA and the state arbitral statute must be read in conjunction with each other. However, as to those that do not, including specifically the decisions of this Court and the Alabama court, the state courts would

40 31 have litigants who were initially forced to abandon their rights to a jury or judge trial in district court to return to that same court for an extensive appellate review procedure if their employer so desired and therefore crafted his arbitration agreement to so hold. Unfortunately such protracted litigation including that of Ms. Quinn who started her journey immediately after being discharged in 2004 was never anticipated in a simple employment case. The clear rulings of this Court hold that contrary substantive provisions of an arbitral statute in state court are nevertheless preempted by the FAA and such ruling should be reinforced by this Court to ensure uniformity with the federal arbitration law applicable not just to Texas but to all fifty states. Respectfully submitted, August 11, 2011 JANETTE JOHNSON LAW OFFICES OF JANETTE JOHNSON 2601 Wellborn Street Dallas, Texas (214) (214) (fax) Counsel for Petitioner