CLOSE X
RSS Feed LinkedIn Instagram Twitter Facebook
Search:
FMG Law Blog Line

Posts Tagged ‘Fifth Circuit’

Arbitrability – Who Decides?

Posted on: September 14th, 2018

By: Ted Peters

The question of arbitrability (i.e., Who decides whether a dispute is arbitrable? The court or the arbitrator(s)?) is as ageless as the conundrum of what came first, the chicken or the egg.  In 2010, the Supreme Court decided Rent-a-Center, Vest Inc. v. Jackson, wherein it concluded that agreements to arbitrate questions of arbitrability are, themselves, enforceable.  That dispute involved an employee who had signed an arbitration agreement that provided for arbitration of disputes arising out of his employment, including discrimination claims.  The agreement expressly provided that the arbitrator, and not a court, had the exclusive authority to resolve any disputes relating to the enforceability of the arbitration agreement.  The Ninth Circuit Court determined that the employee’s argument that the agreement was unconscionable was a matter of fact for the court rather than the arbitrator.  In a split vote, the Supreme Court found otherwise, and concluded that because the employee challenged the agreement as a whole (and not only the delegation provision), the determination had to be made by the arbitrator.

The US Supreme Court will weigh in again on the issue of arbitrability. On June 25, 2018, the Court accepted certiorari in the case of Henry Schein, Inc. v. Archer & White Sales, Inc., a case in which the Fifth Circuit addressed the arbitrability of antitrust claims asserted against a distributor of dental equipment.  The defendants/appellants sought to enforce an arbitration agreement.  The magistrate granted a motion to compel arbitration, concluding that the threshold question of the arbitrability of the claims was vested in the decision of an arbitrator, and not for a court to decide.  The district court, however, reversed, finding that it had the authority to rule on the question of arbitrability and concluded that the claims at issue were not arbitrable.  The Fifth Circuit affirmed finding that submission of the dispute to the arbitrator was not necessary because the assertion of arbitrability was “wholly groundless.”  The appellate court explained that the arbitration clause in question created a carve-out for “actions seeking injunctive relief,” but did not limit the exclusion to “actions seeking only injunctive relief.”  The court reasoned that even though the agreement would allow the plaintiff/respondent to avoid arbitration by simply adding a claim for injunctive relief did not change the clause’s plain meaning.

The decision in Henry Schein underscores that a conflict has developed among the lower courts; some recognizing an exception for “wholly groundless” claims of arbitrability, but others not.  Defendants/appellants seek to have the Supreme Court reject the “wholly groundless” exception, asserting that the Fifth Circuit’s decision cannot be reconciled with the Federal Arbitration Act’s text or its overarching purpose: “to ensure that private agreements to arbitrate are enforced according to their terms.”  The question presented before the Court is simple: “Whether the Federal Arbitration Act permits a court to decline to enforce an agreement delegating questions of arbitrability to an arbitrator if the court concludes the claim of arbitrability is “wholly groundless.”

Oral argument is scheduled for October 29, 2018.

If you have questions or would like more information, please contact Ted Peters at [email protected].

Loss of SEC Commissioners Piwowar and Stein May Wreak Havoc on SEC’s Proposed Fiduciary Regulations

Posted on: June 1st, 2018

By: Ted Peters

On May 7, 2018, Republican SEC Commissioner Michael Piwowar announced that he will resign effective July 7, 2018.  Piwowar’s five-year term expires on June 5, but SEC commissioners are permitted to remain in office for up to 18 months following the end of their term.  Democratic Commissioner Kara Stein’s term expired in 2017 and she too is expected to leave the Commission this year.

Piwowar was admittedly a harsh critic of the U.S. Department of Labor’s fiduciary rule (calling it a “terrible, horrible, no good, very bad” rule), which has since been struck down by the Fifth Circuit Court of Appeal.  He also expressed significant misgivings with the Commission’s April 18, 2018 proposals which attempt to establish standards of conduct for financial advisors.  Despite such concerns, Piwowar wholeheartedly voted in favor of putting the proposals out for public comment lest anyone criticize the SEC for failing to take action.  Stein, however, voted against the proposals, finding them too weak and suggesting they be called “Regulation Status Quo.”

Regardless of their personal views, the loss of Commissioners Piwowar and Stein will undoubtedly put further pressure on the SEC as the agency takes comments on the proposals. On the other hand, the SEC might have an easier go in reaching a compromise with the decision being left to just three commissioners.  In theory, the White House and Senate could quickly take action to replace Piwowar and Stein, as it is customary for the Senate to consider commissioners in pairs (Republican and Democrat).  In the meantime, between the departures of Piwowar and Stein, the SEC will operate with four commissioners including two Democrats, which could lead to deadlocked votes, something for which the SEC is well known.

If you have questions or would like more information, please contact Ted Peters at [email protected].

9th Circuit Holds Inadmissible Evidence May Support Class Cert

Posted on: May 17th, 2018

By: Ted Peters

Courts around the country are split over whether admissible evidence is needed to support a class certification.  The Fifth Circuit requires it, and the Seventh and Third Circuits appear to be of the same opinion.  In contrast, the Eighth Circuit has indicated that inadmissible evidence can be considered.  On May 3, 2018, the Ninth Circuit join ranks with the Eighth Circuit when it issued an opinion indicating that certification of a class action can be supported by inadmissible evidence.

The case arises out of the district court’s decision to deny class certification to a group of nurses based, in part, on the finding that two of the named plaintiffs had not offered evidence that they were underpaid.  Their only evidence consisted of a paralegal’s analysis of time cards reflecting that hours were not properly calculated.  While perhaps not sufficiently trustworthy to be admitted at trial, the Ninth Circuit concluded that the district court prematurely rejected such evidence when ruling on whether the class could be certified.  The Court stated: “Notably, the evidence needed to prove a class’s case often lies in a defendant’s possession and may be obtained only through discovery.  Limiting class-certification-state proof to admissible evidence risks terminating actions before a putative class may gather crucial admissible evidence.”

The Court also concluded that, because there was no consideration as to whether the employer controlled the nurses after they clocked in, the district court misapplied the definition of “work” under California jurisprudence.  Lastly, the Court was critical of the finding that the law firm representing the putative class action was incapable of properly representing the class, focusing on “apparent errors by counsel with no mention of the evidence in the record demonstrating class counsel’s substantial and competent work on [the] case.”

If you have questions or would like more information, please contact Ted Peters at [email protected].

DOL Fiduciary Rule Suffers a Slow Death

Posted on: May 15th, 2018

By: Ted Peters

In 2016, the U.S. Department of Labor (“DOL”) promulgated a set of rules and regulations now infamously referred to as the “Fiduciary Rule.”  After multiple criticism and legal challenges, the Fifth Circuit Court of Appeal struck down the Fiduciary Rule effective May 7, 2018.  Surprising many, the DOL elected not to challenge the Fifth Circuit ruling.  Even more surprising, however, was the bulletin issued by the DOL on the effective date of the court’s order.

The court’s ruling, which was not opposed by the DOL, left many unanswered questions.  Enter the DOL’s field bulletin.  Rather than admitting the total defeat of the Fiduciary Rule, however, the DOL seeks to maintain the status quo.  Specifically, the DOL announced that pending further guidance, advisors will not be penalized for either complying with the Fiduciary Rule, or ignoring it in favor of pre-existing standards.  Unfortunately, this announcement leaves the single most important question unanswered – what is the standard to which advisors will be held?  With the U.S. Securities and Exchange Commission working on its own set of rules, and the wait-and-see approach embraced by the DOL notwithstanding, only time will tell.

If you have questions or would like more information, please contact Ted Peters at [email protected]glaw.com.

DOJ Fails to Challenge 5th Circuit Ruling Striking Fiduciary Rule

Posted on: May 3rd, 2018

By: Theodore C. Peters

On March 15, 2018, the Fifth Circuit Court of Appeal stuck down the “fiduciary rule” proposed by the Department of Labor (DOL), which required brokers to act in the best interests of their clients in retirement accounts.  Subsequently, there was much speculation as to whether the Department of Justice (DOJ), acting on behalf of the DOL, would appeal that decision.  The April 30, 2018 deadline for the DOJ to appeal came and went, but …. nothing.  The Fifth Circuit’s ruling, therefore, is slotted to take effect on May 7, 2018.

In late April, AARP and several state attorneys general (including California, New York and Oregon) joined forces in seeking the court’s permission to intervene as defendants in the case, and also sought an en banc hearing before the entire 17-judge circuit. AARP contends that the court’s decision striking down the DOL rule puts Americans’ retirement security at substantial risk, resulting in an “issue of exceptional importance.”  The plaintiffs in the case, opponents of the DOL rule, formally opposed the motions to intervene on April 30.  Counsel for the plaintiffs charged that the “last-minute motions do not come close to justifying their unprecedented bid to intervene…”

On May 2, the Fifth Circuit denied the intervenors’ motions.  The court’s decision looks to be the final nail in the coffin holding the DOL’s fiduciary rule.  Despite this ruling, however, the DOL still has one more card it could play – it can file a petition by June 13 to have the Supreme Court hear the case. Even if the DOL stands quietly by and does nothing, the Supreme Court could conceivably take the case up on its own.

Ultimately, this legal brouhaha focuses attention on the SEC, which is currently taking public comment on newly proposed standards of conduct for brokers and advisors.

If you have questions or would like more information, please contact Ted Peters at [email protected].