Circuit Splits

Circuit Split Roundup

For the latest coverage of noteworthy issues dividing the federal courts, check out the following links:

• Jack Townsend, Circuit Splits on Defense Witness Immunity, Federal Tax Crimes (Dec. 3, 2012).

• Kerry A. Brennan & Alexander Parachini, Circuit Split in Enforceability of Arbitration Clauses in Bankruptcy Left Unresolved, jdsupra.com (Nov. 29, 2012).

• Rudolph J. Di Massa, Jr., United States: Supreme Court To Address Circuit Split Over 'Defalcation' Meaning, mondaq.com (Nov. 29, 2012).

• Minnesota Divorce Lawyer, Supreme Court to resolve circuit split in Hague Convention cases, FindLaw KnowledgeBase (Dec. 4, 2012).

Courts in Conflict Over Interpretation of “Arising Under” Arbitration Clauses

Last week the U.S. District Court for the District of Nevada noted the existence of “a dispute among the circuits regarding the interpretation of certain common arbitration provisions.” Operation: Heroes, Ltd. v. P & G Prods., Inc., Case No. 2:12-cv-00214-MMD-GWF (D. Nev. Oct. 11, 2012). Earlier this year a Hawaiian court summarized the conflict referenced in the Operation: Heroes, Ltd. opinion as follows: 

In cases construing agreements requiring arbitration for disputes "arising under" or "arising out of" the agreement or arising "hereunder," there is a split of authority among federal courts as to how such language should be interpreted. Some courts, primarily in the Ninth Circuit, construe that type of arbitration language as being narrow and restrict arbitration only to disputes relating to interpretation and performance of the contract. See Mediterranean Enters., Inc., 708 F.2d 1458; In re Kinoshita & Co., 287 F.2d 951 (2d Cir. 1961); Cape Flattery Ltd., 607 F. Supp. 2d at 1185-88. On the other side, some courts construe such language broadly. See Dialysis Access Ctr., LLC v. RMS Lifeline, Inc., 638 F.3d 367, 380-82 (1st Cir. 2011) (rejecting Kinoshita); Battaglia v. McKendry, 233 F.3d 720, 725-27 (3d Cir. 2000); Gregory v. Electro-Mechanical Corp., 83 F.3d 382, 385 (11th Cir. 1996).

 Cnty. of Haw. v. Unidev, LLC, Nos. CAAP-10-0000188 & CAAP-11-0000019 (Haw. Ct. App. Aug. 31, 2012).

Circuit Split Roundup

For the latest coverage of noteworthy issues dividing the federal courts, check out the following links:

• Joseph Celentino, Circuit Split Deepens on Sham Marriage Rulings, Courthouse News Services (Oct. 16, 2012 7:15 A.M. P.T.).

• Cynthia Augello, Circuit Split: How Does the CFAA Apply to Employment Cases?, jdsupra.com (Oct. 15, 2012).

• Rhonda Cook, Georgia gun group files Supreme Court appeal of ban on guns in ‘places of worship’, Atlanta Journal-Constituton (Oct. 16, 2012).

• Quinn Emanuel Urquhart & Sullivan, LLP, October 2012: International Arbitration Litigation Update (Oct. 16, 2012).

Circuit Split Roundup

For the latest coverage of noteworthy issues dividing the federal courts, check out the following links:

• Michelle Olsen, Circuit Split Watch: Earning a Return on Seized Money, Appellate Daily (Oct. 4, 2012).

• Circuit Split on FICA Taxes: Is it Time to File Your Refund Claim?, Dykema (Oct. 2, 2012).

• The Sixth and Second Circuits Widen Circuit Split Concerning Pleading Standards for “Stock Drop” and Misrepresentation Claims Under ERISA, Sidley Austin LLP (Sept. 27, 2012).

• Joe Schuler, Circuit Split Over Graphic Label Requirement for Tobacco Products, Kentucky Journal of Equine, Agriculture, & Natural Resources Law (Oct. 2, 2012).

• Arbitration — Current State of the Circuit Split Concerning the Viability of Manifest Disregard as Ground for Vacatur, Josephnyc.com.

1st Circuit Addresses Applicability of "Manifest-Disregard" Doctrine to Arbitration Awards

As I noted back in June (here), a circuit split exists over whether, under the Federal Arbitration Act, courts may vacate arbitration awards where an arbitrator has manifestly disregarded the law (e.g., an award based on a coin flip rather than applicable case law). Last week Judge Michael Boudin, writing for the First Circuit in Bangor Gas Co., LLC v. H.Q. Energy Services U.S., noted that the courts of appeals are divided on this issue:

The manifest-disregard doctrine has been thrown into doubt by Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576, 128 S. Ct. 1396, 170 L. Ed. 2d 254 (2008), where the Supreme Court "h[e]ld that [9 U.S.C. § 10] . . . provide[s] the FAA's exclusive grounds for expedited vacatur." Id. at 584 (emphasis added). This has caused a circuit split,³ with this court saying (albeit in dicta) that "manifest disregard of the law is not a valid ground for vacating or modifying an arbitral award in cases brought under the Federal Arbitration Act," Ramos-Santiago v. United Parcel Serv., 524 F.3d 120, 124 n.3 (1st Cir. 2008).

3. Compare Wachovia Sec., LLC v. Brand, 671 F.3d 472, 480 (4th Cir. 2012) (recognizing continuing validity of manifest disregard doctrine), Johnson v. Wells Fargo Home Mortgage, Inc., 635 F.3d 401, 415 n.11 (9th Cir. 2011) (same), Stolt-Nielsen SA v. Animal Feeds Int'l Corp., 548 F.3d 85, 94 (2d Cir. 2008), rev'd on other grounds, 130 S. Ct. 1758, 176 L. Ed. 2d 605 (2010) (same), and Coffee Beanery, Ltd. v. WW, L.L.C., 300 Fed. App'x 415, 418 (6th Cir. 2008) (unpublished opinion) (same), with Frazier v. CitiFinancial Corp., 604 F.3d 1313, 1324 (11th Cir. 2010) (rejecting manifest disregard doctrine as invalid), Citigroup Global Mkts., Inc. v. Bacon, 562 F.3d 349, 350 (5th Cir. 2009) (same), and Crawford Grp., Inc. v. Holekamp, 543 F.3d 971, 976 (8th Cir. 2008) (same).

No. 12-1386 (1st Cir. Sept. 26, 2012). As such, the court concluded, "[e]ven if the manifest-disregard doctrine were assumed to survive and were applied in this case, the award neither conflicts with the plain language of the Agreement nor did the arbitrators recognize the applicable law but ignore it."

[*Image courtesy of awrose on flickr.]

Circuit Split Roundup

For the latest coverage of noteworthy issues dividing the federal courts, check out the following links:

• Audra A. Dial & John M. Moye, Fourth Circuit Widens Split Over CFAA and Employees Violating Computer Use Restrictions, martindale.com (Sept. 10, 2012).

• Daren M. Orzechowski, Bijal V. Vakil, & Carmen Lo, A Widening Circuit Split in the Interpretation of the Computer Fraud and Abuse Act, White & Case (Sept. 13, 2012).

• Louis M. Solomon, Fourth Circuit Weighs in on Circuit Split Concerning Whether State Insurance Statutes “Reverse Preempt” Arbitration Provisions in International Agreements, OneWorld International Practice Blog (Aug. 7, 2012).

4th Circuit Highlights Clash Between State, Federal, and International Arbitration Laws

Yesterday the Fourth Circuit issued its decision in ESAB Group v. Zurich Insurance PLC, a case raising “a complex question regarding the intersection of a treaty and federal and state statutory law.” Not surprisingly, this question—whether state insurance law may “reverse preempt” a treaty guaranteeing the reciprocal enforcement of arbitration agreements and awards in signatory nations—has led to a split among the circuit courts.

In 1970, the U.S. became a party to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the Convention), under which the U.S. promised to enforce arbitration agreements and awards arising out of commercial relationships reasonably related to one or more of the signatory nations. As the Fourth Circuit in ESAB Group noted, Congress enacted chapter 2 of the Federal Arbitration Act to ensure that all arbitration agreements and awards reasonably related to foreign interests or citizens are respected and enforced on U.S. soil in a manner consistent with its Convention.

In doing so, Congress placed the Convention and its corresponding Act on a collision course with the McCarran-Ferguson Act of 1946, which “authorizes ‘reverse preemption’ of generally applicable federal statutes by state laws enacted for the purpose of regulating the business of insurance.” Congress enacted the McCarran-Ferguson Act, the Fourth Circuit's opinion explains, “to restore the states’ preeminent position in insurance regulation” by reversing the normal rule under which state law is impliedly preempted by conflicting federal law.

In ESAB Group, a Swedish insurance provider agreed to insure ESAB Group, a South Carolina company that makes welding and cutting equipment, tools, and materials. In return, the ESAB Group’s parent company agreed to arbitrate coverage disputes in Swedish arbitral tribunals. In 2009, ESAB Group’s insurance provider refused coverage, prompting ESAB Group to file suit in state court. The insurance provider removed the case to federal court, to which the ESAB Group responded by arguing that the McCarran-Ferguson Act deprived the federal court of subject-matter jurisdiction over the dispute, notwithstanding the Group’s arbitration clause to the contrary.

On appeal, the Fourth Circuit considered whether the South Carolina law, which would have invalidated ESAB Group’s arbitration agreement mentioned above, may reverse preempt the Convention under the McCarran-Ferguson Act. Writing for the three-member panel, Judge Henry Floyd identified “a split amongst our sister circuits concerning the interaction between the Convention, the Convention Act, and the McCarran-Ferguson Act.” Compare Stephens v. Am. Int’l Ins. Co., 66 F.3d 41 (2d Cir. 1995) (holding that state laws precluding arbitration in certain cases may preempt the Convention or Convention Act pursuant to the McCarran-Ferguson Act); with Safety Nat’l Cas. Corp. v. Certain Underwriters at Lloyd's, London, 587 F.3d 714, 722–23 (5th Cir. 2009) (en banc) (rejecting the applicability of reverse preemption in such cases).

After analyzing the competing positions, the Fourth Circuit in ESAB Group joined the Fifth Circuit in holding that “the Convention Act, as implementing legislation of a treaty, does not fall within the scope of the McCarran-Ferguson Act.” You can read the court’s full opinion here: ESAB Group v. Zurich Insurance PLC, No. 4:09-cv-01701-TER (4th Cir. July 9, 2012).

*Hat tip to Steven M. Klepper.

Circuit Split Roundup

For the latest coverage of noteworthy issues dividing the federal courts, check out the following links:

• Michelle Olsen, Circuit Split Watch: Miranda at Booking, Appellate Daily (July 3, 2012 7:21 AM) (HTML).

• Philip Miles, SCOTUS Grants Cert in ERISA Case, LexisNexis Labor & Employment Law Community (June 28, 2012 11:25 PM EST) (HTML).

• Liz Kramer, First Circuit Makes Circuit Split Lopsided in Favor of Narrowing of Stolt-Nielsen, Arbitration Nation (July 4, 2012) (HTML).

• Matthew J. Freery, The Supreme Court to Settle Circuit Split on Supervisor Substance, Gonzalez Saggio & Harlan LLP (June 27, 2012) (HTML).

• James M. Pearl & Alicia Hancock, Unanimous En Banc Seventh Circuit Decision Expands Extraterritorial Reach of US Antitrust Laws, O'Melveny & Myers LLP (June 27, 2012) (PDF).

Circuit Split Roundup

For the latest coverage of issues dividing the courts, check out the following links:

• Dale E. Barnes Jr., Todd E. Gordinier, & Craig A. Taggart, Supreme Court to Resolve Split Among Circuit Courts Over the Fraud-on-the-Market Presumption at Class Certification, Bingham (June 14, 2012) (HTML).

• Matthew Brown, 'Final' Awards Reconceptualized: A Proposal to Resolve the Hall Street Circuit Split (June 15, 2012) (SSRN).

• Keith Gibson, Kiobel Update: Nigerian Plaintiffs File Supplemental Brief Arguing ATS Reach is Limitless, Product Liability Monitor (June 14, 2012) (HTML).

• Stephen L. Wasby, How the Ninth Circuit Fares in the Supreme Court: The Intercircuit Conflict Cases, 1 Seton Hall Cir. Rev. 119 (2005) (PDF).

Circuit Splits in Scholarship

Here are a few recent articles analyzing issues on which the circuit courts are split for your reading pleasure: 

• Michael Tudor & Richard A. Bales, You Say Stay: Staying District Court Proceedings Pending Faa § 16(A) Appeals, 64 S.C. L. Rev. ___ (forthcoming 2012) (SSRN).

Abstract: In 1988 Congress amended the Federal Arbitration Act (FAA) and adopted § 16 governing the appeal of arbitrability decisions as part of the Judicial Improvements and Access to Justice Act. The purpose of the amendment was to ensure that the process of appealing arbitrability determinations does not delay entry into arbitration. Section 16(a) allows an immediate appeal from an anti-arbitration decision while 16(b) precludes an appeal when the decision is in favor of arbitration. However, it does not specify whether district court proceedings must be stayed pending appeal. A circuit split has developed with the majority of circuits concluding that non-frivolous appeals divest the district court of jurisdiction resulting in an automatic stay of proceedings pending appeal. A minority of circuits have concluded that arbitrability appeals do not divest the district court of jurisdiction and the court has discretion of whether to stay proceedings. This article will analyze four central issues that courts address when considering whether to issue a stay pending appeal from a denial of arbitration: the text and purpose of § 16, jurisdiction, analogy to double jeopardy and immunity, and the policy concern of frivolous appeals. This article argues that courts should impose an automatic stay because that approach is most consistent with the text and purpose of the FAA, because it is most consistent with Supreme Court precedent, and because it best effectuates the policy concerns of preventing frivolous appeals and effectuating the intent of signatories to arbitration agreements.

• Danielle Acker Susanj, Should Padilla Be Retroactive?, Working Paper (May 4, 2012) (SSRN).

Abstract: When the Supreme Court decided Padilla v. Kentucky in 2010, it declared that defense lawyers had a duty to inform criminal defendants what the removal consequences of pleading guilty could be, if those consequences were clear. The Padilla majority asserted that the decision would not open the “floodgates” to new claims of ineffective assistance of counsel. Yet if there has not been a flood of cases, there has certainly been a growth of confusion as courts have struggled to determine exactly how far and to whom the gates were opened — does Padilla only apply to criminal cases on direct review and to the behavior of defense lawyers going forward, or do offenders whose convictions were final before Padilla also receive its protection? The answer has split the federal circuit courts and state courts that have considered it, leading the Supreme Court recently to grant certiorari on this difficult issue. The Court’s jurisprudence, the purposes of post-conviction review, and the practical consequences point in various directions on the question of retroactively applying the Padilla rule. The divided arguments and the rule from a divided Court suggest that a divided approach might be the best way forward.

• Laura Jean Eichten, A Felony, I Presume?: 21 USC § 841(b)’s Mitigating Provision and the Categorical Approach in Immigration Proceedings, Working Paper (Apr. 25, 2012) (SSRN).

Abstract: This Comment comprises four parts. In Part I, I provide an overview of the immigration law on cancellation of removal and the challenges in defining “aggravated felony.” I include a detailed discussion of the approaches for dealing with the translation of state law convictions into federal crimes. In Part II I explain the intricacies of the Controlled Substances Act, which, as will be seen in Part III, further complicates the already-complicated process of defining an “aggravated felony.” In Part III I delve into the circuit split surrounding how specifically to analogize state law drug convictions to the misdemeanor provision in the CSA, [21] USC § 841(b)(4).

Finally, in Part IV I propose a framework for translating state law drug convictions to into federal drug convictions under § 841(b)(4). I argue that the circuit courts addressing this issue have failed to give adequate attention to the Supreme Court’s guidance regarding the categorical approach, as well as the original reasons for using the categorical approach in immigration proceedings. This guidance suggests that courts should analyze crimes differently during collateral proceedings at Time Two than they would if they were adjudicating criminal sentencing proceedings at Time One. The framework adopted here would allow the immigration judge to look into the record of conviction under broad statutes to the extent he can find facts that were necessarily decided by the Time One fact finder. But on an empty record — a criminal trial record that indicates neither the quantity nor remunerative nature of the drug transaction — I suggest that state law drug convictions should be presumed to correspond to the CSA’s misdemeanor provision, and thus the noncitizen should be presumed not to have committed an aggravated felony.

Can't Touch This: Courts Disagree Over Authority to Vacate Arbitrary Arbitration Awards Under the "Manifest-Disregard" Doctrine

For arbitration awards that are the product of a manifest disregard of the law, it's hammer time. At least in jurisdictions that still recognize the "manifest-disregard" doctrine, that is.

On Monday, Judge Joel A. Pisano of the U.S. District Court for the District of New Jersey issued an opinion highlighting a circuit split over whether this doctrine survived the Supreme Court’s decision in Hall Street Associates, L.L.C. v. Mattel, Inc., 552 U.S. 576 (2008) “either as ‘an independent ground for review or as a judicial gloss on the enumerated grounds’ in the [Federal Arbitration Act (FAA)].” Cerone v. Bank of Am., Civil Action No. 12-00214 (JAP) (Dist. N.J. June 4, 2012) (unpublished). The FAA provides a laundry list of scenarios in which a district court may vacate an arbitration award. See 9 U.S.C. § 10(a).

The statute does not explicitly refer to an arbitrator’s “manifest disregard” of the law, and the Court left the question for another day in its decision in Hall Street Associates, L.L.C. Judge Pisano outlined the resulting circuit split over the issue as follows: 

The Third Circuit has not yet ruled on the issue, and the decisions of other Circuits are split. See, e.g., Paul Green School of Rock Music Franchising LLC v. Smith, 389 F. App'x 172, 176-77 (3d Cir. 2010). The Second and Ninth Circuits have held that the doctrine survives because a manifest disregard for the law is one way that arbitrators may "exceed their powers" under 9 U.S.C. § 10(a)(4). Id. at 177 n.6 (citing Comedy Club Inc. v. Improv W. Assocs., 553 F.3d 1277, 1290 (2d Cir. 2008); Stolt-Nielsen SA v. Animal Feeds Int'l Corp., 548 F.3d 85, 93-95 (2d Cir. 2008)). The Fifth and Eleventh Circuits, however, have held that the doctrine is no longer valid. Id. (citing Frazier v. CitiFinancial Corp. LLC, 604 F.3d 1313 (11th Cir. 2010); Citigroup Global Markets v. Bacon, 562 F.3d 349, 357 (5th Cir. 2009)).

Whether or not a "manifest disregard" standard still applies in the Third Circuit, it is clear that a Plaintiff must do more than state his disagreement with the arbitrator's ruling in order to survive a motion to dismiss. "It is only when an arbitrator strays from interpretation and application of the agreement and effectively dispenses his own brand of industrial justice that his decision may be unenforceable." Stolt-Nielsen S. A., 130 S. Ct. at 1767 (quoting Major League Baseball Players Ass'n v. Garvey, 532 U.S. 504, 509, 121 S. Ct. 1724, 149 L. Ed. 2d 740 (2001)) (internal citations omitted). Thus, if an "'arbitrator is even arguably construing or applying the contract and acting within the scope of his authority,' the fact that 'a court is convinced he committed serious error does not suffice to overturn his decision.'" Eastern Associated Coal Corp. v. United Mine Workers of America, District 17, 531 U.S. 57, 62, 121 S. Ct. 462, 148 L. Ed. 2d 354 (2000) (citing Paperworkers v. Misco, Inc., 484 U.S. 29, 38, 108 S. Ct. 364, 98 L. Ed. 2d 286 (1987)). "Neither a court's disagreement with the arbitrator's construction of a contract nor its belief that its interpretation of a contract is better justifies a court overruling the arbitrator." Exxon Corp. v. Local Union 877, Intern. Broth. of Teamsters, Chauffeurs, Warehousemen and Helpers of America, 980 F. Supp. 752, 760 (D.N.J. 1997) (citing News America Publications, Inc. Daily Racing Form Div. v. Newark Typographical Union, Local 103, 918 F.2d 21, 24 (3d Cir. 1990)).

Cerone, Civil Action No. 12-00214 (JAP). Perhaps the time has come for the Supreme Court to decide whether arbitration awards resulting from a manifest disregard of the law are in indeed untouchable.

Circuit Split Roundup

For the latest coverage of issues dividing the courts and splits in authority recently resolved by the Supreme Court, check out the following links:

• Rudplph J. Di Massa, Jr. & Aaron J. Margolis, United States: Supreme Court Addresses Circuit Split Over Cramdown Plans Precluding Credit Bidding, The Legal Intelligencer (May 28, 2012), republished on mondaq.com (HTML).

• Alanna Byrne, Decision deepens circuit split on scope of CFAA, Inside Counsel (May 30, 2012) (HTML).

• Ballard Spahr LLP, Second Circuit Splits with Ninth Circuit on Enforcement of Class Action Waivers, jdsupra.com (May 30, 2012) (HTML).

• Mark Hamblett, Circuit Declines En Banc Review in Amex Arbitration Case, New York Law Journal (May 30, 2012) (HTML).

• Karen Breda, SCOTUS resolves circuit split on imputation of parent's resident status to alien children, Boston College Legal Eagle (May 31, 2012) (HTML).

Circuit Split Roundup

For the latest news and commentary on matters of law on which the circuits are divided, check out the following links: 

• Adam Pié, Note, The Monster Under the Bed: The Imaginary Circuit Split and the Nightmares Created in the Special Needs Doctrine's Application to Child Abuse, 65 Vand. L. Rev. 563 (2012) (PDF).

• Richard Tonowski, Legal Update: Who is the Supervisor?, Assessment Services Review (Mar. 30, 2012) (web).

• Elbert Lin & J. Andrew Law, In Arbitration, a Right to an Automatic Stay Pending Appeal?, Corporate Counsel (Apr. 2, 2012) (web).

• Sheppard Mullin, Fifth Circuit Requires More than "Tangential Relationship" Between Alleged Fraud and Transactions in "Covered Securities" to Support Dismissal Under the Securities Litigation Uniform Standards Act of 1998, Corporate Securities Law Blog (Mar. 20, 2012) (web).

• Renee Choy Ohlendorf, Intervenors Still in Limbo on Standing Requirements, Litigation News (Mar. 26, 2012) (web).