United States Circuit Judge Judge Frank H. Easterbrook’s opinion in Carter v. SP Plus Corp., No. 25-2127, slip op. at 1-5 (7th Cir. Apr. 15, 2026), is important for two related reasons. First, it carefully distinguishes an immediately appealable denial of a motion to compel arbitration from a non-appealable order refusing to lift a Section 3 stay of litigation pending the district court’s decision on whether an arbitration agreement was formed. Second, and more significantly, it rejects an employer’s attempt to invoke the federal policy favoring arbitration as a reason to relax ordinary procedural and evidentiary rules and resolve doubts in favor of arbitration. The opinion instead applies Morgan v. Sundance, Inc., 596 U.S. 411, 418 (2022), according to its terms: arbitration agreements are to be enforced like other contracts, not a favored class of “super contracts” entitled to special treatment. (For a discussion of Morgan, see here.)

We have discussed how, even before Morgan, courts have recognized that the federal policy in favor of arbitration is of limited scope. (See here.)  Essentially, the principle that doubts should be resolved in favor of arbitration is not at all a generally applicable rule of decision in arbitration law but rather allows, in a limited context, a pro-arbitration resolution of ambiguities concerning the scope of the arbitration agreement itself. See Granite Rock Co. v. Int’l Bhd. of Teamsters, 561 U.S. 287, 301-303 (2010); Lamps Plus v. Varela, 139 S. Ct. 1407, 1418-19 (2019).

Nevertheless, arbitration proponents sometimes still contend that the the federal policy in favor of arbitration requires courts to select a pro-arbitration outcome whenever some doubt exists about an arbitration-law-related question.

Carter reminds us that is not so. The Federal Arbitration Act (the “FAA”) does not authorize arbitration-agreement exceptionalism. If ordinary litigation principles cut against agreement enforcement, then the result should be the same as obtains in any other ordinary contract action. See Carter, slip op. at 4-5; Morgan, 596 U.S. at 418. Outside of its limited role in requiring the summary resolution of contract ambiguities in the scope of the arbitration agreement itself—something that spares arbitration-law litigants (and courts)  from having to conduct lengthy trials to resolve contract ambiguities about scope—the federal policy in favor of arbitration plays no meaningful role, apart from ensuring that arbitration agreements are on an equal footing with other contracts.

Carter is of interest because it concerns FAA Section 16 interlocutory appeals, FAA Section 4 formation disputes, and Morgan‘s continuing role in curbing overbroad invocations of pro-arbitration policy.

Background

Carter, an employee, sued SP Plus Corporation, the employer,  under state and federal minimum-wage statutes. Shortly thereafter,  the district judge stayed the litigation in favor of arbitration based on a checked box in Carter’s electronic “‘onboarding materials’” that allegedly reflected assent to a “Mutual Agreement to Arbitrate All Claims.” Carter, slip op. at 1.

But an FAA Section 3 stay was entered too quickly and without notice to Carter. After this initial ruling, Carter filed an affidavit describing a very different onboarding process from the one SP Plus had presented. According to Carter, a human-resources employee, Brenjy Etienne, filled out and signed most of the forms on Carter’s behalf, did not explain what they were, did not offer Carter the option to decline arbitration, and did not allow him to see the computer screen on which the choices were being made. If Carter’s account was true, then he had not consented to arbitration. Id. at 2.

On reconsideration, the district court lifted the Section 3 stay and denied SP Plus’s motion to stay pending arbitration, concluding that on the record the court could not determine that a valid arbitration agreement had been formed. Id. at 2. SP Plus appealed instead of submitting responsive evidence or asking the district court to conduct an evidentiary hearing.

The Section 16 Question

The first issue on appeal was appellate jurisdiction under FAA Section 16. SP Plus argued that the district court had entered an appealable order under 9 U.S.C. Section 16(a)(1), either by refusing a stay of litigation under Section 3 or by denying a Section 4 petition to order arbitration to proceed. See 9 U.S.C. § 16(a)(1)(A) & (B). The Seventh Circuit acknowledged that the district court did not expressly state whether the district court was denying the request for arbitration. Id. at 2-3.

As the Court explained, there were two different possibilities. If the district court’s next step was merits litigation, then the order effectively denied arbitration and could be appealed. But if the next step was merely an evidentiary hearing, or a trial under Section 4, to determine whether Carter himself checked the box and agreed to arbitrate, then the district court had not denied arbitration. It had only postponed decision while evaluating disputed evidence. A delay of that kind is different from an appealable denial, said the Court. Id. at 3.

The Court quoted Section 4, and the procedures Section 4 maps out for resolving disputes about whether arbitration should be compelled, including notice to parties resisting arbitration. The Court observed that the district court had acknowledged it made its original order without notice and without granting a trial, which is required when the making of the arbitration agreement is in issue.  “This implies],]” said the Court, “that the order [on reconsideration] rescinding the premature directive to arbitrate is not final and that the appeal must be dismissed.”  Id. at 3.

The Court’s Jurisdiction Analysis and Conclusion

But that was not the end of it. The Seventh Circuit ultimately concluded that in the circumstances, this particular order was appealable. That was so not because the  district court had clearly  denied arbitration in the first instance (it did not), but because SP Plus had forfeited any entitlement to the Section 4 hearing or trial that might otherwise have occurred as a result of the order. Absent such forfeiture, the order would have been non-appealable because it would not have denied the request for arbitration or otherwise constituted a final decision with respect to arbitration. See id. at 3-4; 9 U.S.C. §§ (a)(1)(A) & (B), (a)(3). But the forfeiture eliminated the necessity for a trial on the making of the agreement, and the order was thus appealable as a denial of a request for arbitration. See id. at 3-4.

The Court explained that a party entitled to a hearing or trial under Section 4 may “relinquish” that right. Id. at 3.  SP Plus wanted the court of appeals to direct the district court to hold a hearing, yet it had never asked the district judge to grant one. Nor had SP Plus submitted any evidence responding to Carter’s affidavit. In the district court, SP Plus did not signal a desire to present testimony from Etienne or anyone else. It simply noticed an appeal. Id. at 4. “A party can’t keep the district court in the dark about the existence of an evidentiary dispute and then ask for relief on appeal[,]” the Court explained.

If SP Plus wanted a hearing, it had to request one and support the request with evidence. It did neither, and the Seventh Circuit held that SP Plus had accordingly forfeited any right to a hearing, which in turn meant that the district court’s order had become a conclusive—and thus appealable—denial of a motion to compel arbitration. Id. at 4.

The Court shows us it is telling to consider SP Plus’s litigation strategy in light of what might have transpired had it proactively asserted its rights. SP Plus could have easily filed an affidavit from Etienne attesting to Carter’s consent to arbitration, if he had consented and she had knowledge of  facts showing that consent. Id. at 4. That might have led to an evidentiary hearing concerning the making of the agreement, see 9 U.S.C. § 4, or depending on what the two affidavits showed, perhaps a ruling on the merits on the consent question. If the result was an evidentiary hearing, or a grant of the request for arbitration, then there would be no appealable order yet.

Alternatively, had Etienne remembered things the way Carter did, and submitted an affidavit to that effect, then—assuming the electronic evidence was inconclusive––SP Plus’s request for arbitration would have “lack[ed] essential evidence.” Id. at 4. That would have resulted in an order denying the request for arbitration, which would have been appealable immediately.

Carter shows how a case that initially appears non-appealable can become appealable because the party seeking arbitration forfeits procedural rights that otherwise would have kept the matter in an interlocutory posture.

The Merits: Formation, Section 4, and Forfeiture

Once the Seventh Circuit determined that appellate jurisdiction existed, the merits were straightforward. Carter had submitted sworn testimony that he never assented to arbitration. Absent a fully formed and enforceable delegation agreement, whether a party agreed to arbitrate is ordinarily a question for the court, not the arbitrator. See, e.g., AT&T Technologies, Inc. v. Communications Workers, 475 U.S. 643, 649, 651 (1986); Granite Rock, 561 U.S. at 299-300, 301-03;  Carter, slip op. at 4. On the record that SP Plus chose to make, the district court’s conclusion that no valid agreement had been shown was not clearly erroneous. Carter, slip op. at 4.

The opinion is especially instructive in what it says about Section 4 procedure. Section 4 does not automatically hand the proponent of arbitration an evidentiary do-over. It gives a right to a hearing or trial when formation is in issue, but like many procedural rights that right can be waived or forfeited. Carter therefore ties together contract formation, Section 4 procedure, and ordinary preservation principles.

There’s a lesson here. Counsel who seek arbitration sometimes  assume that once the opponent submits an affidavit disputing assent, the district court must on its own set a hearing and continue protecting the arbitration request from adverse consequences. Carter exposes that assumption as unfounded. The burden remains on the party seeking arbitration to request the hearing, preserve the record, and adduce evidence on the existence of an arbitration agreement. If it does not, the district court is entitled to treat the record as closed and decide the issue against the party bearing the burden of proving an agreement.

The Federal Policy in Favor of Arbitration Cannot Save the Day

The opinion’s most significant contribution comes in its final section. SP Plus argued that the Seventh Circuit should effectively “place a thumb on the scale in favor of” a pro-arbitration outcome because of the federal policy in favor of arbitration. Id. at 4. The Court—quite correctly, the author thinks—emphatically rejected that proposition, relying on Morgan,  where the Supreme Court made clear that the federal policy in favor of arbitration is to make arbitration agreements “as enforceable as other contracts, but not more so.” Morgan, 596 U.S. at 418 (citation and quotation omitted); Carter, slip op. at 4-5;  Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 n.12 (1967).

Carter applies Morgan in an important context. Morgan is, not surprisingly, often cited in waiver cases, because Morgan itself rejected arbitration-specific waiver rules. But as Morgan’s text strongly suggests, and Carter confirms, Morgan’s discussion of the federal policy in favor of arbitration has implications outside of the waiver context. Morgan rejects arbitration exceptionalism generally; Carter demonstrates that the point extends beyond waiver to formation disputes, evidentiary burdens, forfeiture of procedural rights, and appellate arguments under Section 16. If ordinary rules would counsel against enforcement of an ordinary contract, they also counsel against enforcement of an arbitration contract. Carter, slip op. at 5.

The import of Carter on the Morgan issue is that the federal policy in favor of arbitration does not extend past the narrow purpose for which it was judicially designed: to resolve in favor of arbitration ambiguities in the scope of an arbitration agreement itself.  See, e.g., Granite Rock, 561 U.S. at 301-303.

The Court also rejected SP Plus’s effort to denigrate Carter’s affidavit as merely “self-serving.” Citing Hill v. Tangherlini, 724 F.3d 965 (7th Cir. 2013), the Court explained that affidavits made on personal knowledge are not to be discounted simply because they are favorable to the affiant. Carter, slip op. at 5. The Seventh Circuit tersely concluded by remarking that “[a] brief that repeats canards expressly rejected by decisions such as Morgan and Hill is hard to take seriously.” Id. at 5.

Conclusion: The Employer wins on Appellate Jurisdiction, Loses on the Merits, and Receives no Help from the Federal Policy in Favor of Arbitration

Carter deserves close attention. It is a compact but important Seventh Circuit opinion that clarifies how FAA Section 16 operates when a district court reconsiders a premature stay in favor of arbitration, how Section 4 hearing rights can be forfeited, and why Morgan v. Sundance is significant well beyond waiver doctrine.

Most importantly, Judge Easterbrook’s well-reasoned opinion rejects the notion that courts should “place a thumb on the scale in favor of arbitration” when ordinary evidentiary and procedural rules point the other way. Id. at 4. The FAA requires equal treatment for arbitration contracts, not favored treatment. Id. at 4-5.  Carter states that proposition clearly and applies it rigorously.

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, or arbitration-related litigation, then please contact Philip J. Loree Jr., at (516) 941-6094 or PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and associated litigation. A former BigLaw partner, he has 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance- or reinsurance-related, and other disputes.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

The post Carter v. SP Plus Corp. and the Federal Policy in Favor of Arbitration: Seventh Circuit Rejects Arbitration Exceptionalism in an FAA Section 16 Ruling Finding no Appellate Jurisdiction appeared first on The Arbitration Law Forum.

In O’Dell v. Aya Healthcare Services, Inc., No. 25-1528, slip op. at 2-3 (9th Cir. Apr. 1, 2026), the Ninth Circuit overturned a district court ruling that invoked non-mutual, offensive collateral estoppel to deem unconscionable hundreds of separate, bilateral arbitration agreements agreements between a corporate health care provider and its individual, nurse employees. O’Dell, a 3-0 opinion, is of  interest to entity and individual parties litigating gateway arbitrability disputes arising out of  mass, class, or collective proceedings.

Background

The case concerned wage-related claims asserted by travel-nurse employees against a healthcare provider, Aya Healthcare Services, Inc. (“Aya”). As a condition of employment, Aya required its employees to sign arbitration agreements containing similar terms. The agreements also contained delegation provisions that required an arbitrator, rather than a court, to decide arbitration-agreement validity disputes. Id. at 4-6. (You can read about delegation provisions here and here.)

The district court initially sent four named plaintiffs’ disputes to four separate arbitrations each to be decided by a different, individual arbitrator. The results were evenly split: Two arbitrators held the agreements unconscionable based on their fee allocation and venue provisions; the other two ruled that the agreements were enforceable, determining that a savings clause (presumably providing  for severability) cured any unconscionability problem. Id. at 6. The district court confirmed three of the four awards, refusing to confirm one of the awards because of Aya’s alleged failure to pay the arbitration fee.  Id.

After 255 additional plaintiffs opted into a Fair Labor Standards Act (“FSLA”) collective action, the district court declined to send their disputes to arbitration. Instead, invoking non-mutual, offensive collateral estoppel, the district court gave preclusive effect to the two arbitral rulings invalidating the agreements, refused to give the same effect to the two rulings upholding the agreements, and held that Aya was barred by collateral estoppel from enforcing the remaining agreements. Id. at 6-7.

The Court did not accord preclusive effect to the two awards that upheld the agreement to arbitrate, dismissing them as not “reasoned” or “thorough.” Id. at 7.

The Court of Appeals for the Ninth Circuit reversed and remanded.

Offensive, Non-Mutual Collateral Estoppel: The Question Presented

The Ninth Circuit considered whether “application of non-mutual offensive collateral estoppel to preclude the enforcement of arbitration agreements is compatible with the Federal Arbitration Act [(the “FAA”)].” Id. at 4. The Court said the answer was no. Id. at 4-5, 12-13.

The Ninth Circuit’s Analysis: Non-Mutual, Offensive  Collateral Estoppl is Incompatible with the FAA

The court’s reasoning was straightforward, but its implications are significant. It began with the FAA’s text.

FAA Section 2 provides, in pertinent part, that arbitration agreements “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract. . . .  9 U.S.C. § 2. Under Section 2, “generally applicable contract defenses such as fraud, duress, or unconscionability” are “grounds for revocation.” Slip op. at 8 (quotations and citations omitted) But there were no such grounds here.

The Ninth Circuit explained that non-mutual offensive issue preclusion is not a “generally applicable contract defense” of the kind contemplated by Section 2’s savings clause. O’Dell, slip op. at 8-9 (quotations and citation omitted). For irrespective of whether a case concerns contract enforceability, this preclusion doctrine may, to avoid relitigation, accord certain judgments preclusive effect. “In other words,” said the Court, “the doctrine is not about contracts or contract defenses.”  It is a judge-made preclusion doctrine which—if used as it was here—would indirectly but effectively invalidate arbitration agreements that the FAA says should be enforced. Id. at 8-10.

It is not a ground for “revocation”—which is “‘[t]he recall of some power, authority, or thing granted, or a destroying or making void of some deed that had existence until the act of revocation made it void.’” Id. at 9 (quotations and citations omitted). “Revocation” under Section 2 “includes fraud, duress, and unconscionability[,]” but “does not pertain to a deficiency with respect to the formation of contracts. . . that might result in “revocation.” Slip op. at 9 (quotations and citations omitted).

Even assuming “revocation broadly encompasses the indirect but effective invalidation of the agreement through preclusion, And to the extent that “revocation broadly encompasses the indirect but effective invalidation of agreements through preclusion,” the doctrine would “contravene critical features of the FAA.” Slip op. at 9 (quotations and citations omitted).

The Court also considered context, considering Sections 3, 4, 10, and 13 of the FAA. Sections 3 and 4 require courts to stay litigation and compel arbitration in accordance with the parties’ agreement once the making of the agreement is not in issue. 9 U.S.C. §§ 3-4. Section 10 provides limited grounds for vacatur focused on defects in the arbitral process, such as corruption, fraud, or evident partiality. Id. § 10. In the Ninth Circuit’s view, nothing in that statutory scheme suggests that Congress contemplated a non-mutual preclusion doctrine that would frustrate arbitrations the parties had separately agreed to undertake. O’Dell, slip op. at 9-10. The court specifically rejected the employees’ reliance on Section 13, reasoning that Section 13 makes confirmed awards enforceable as judgments, but does not authorize using one confirmed award to abrogate distinct arbitration agreements involving other parties. Id. at 12-13.

Application of Offensive, Nonmutual Collateral Estoppel Violates Arbitration’s First Principle

The FAA’s first principle—consent, not coercion—provided the Court with a second— and perhaps in some ways, more important—rationale. (For a discussion of arbitration’s “first principle,” see here.) The FAA, the panel explained, presupposes that arbitration is a matter of consent, not coercion. Id. at 10-11 (citing Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 681 (2010); Lamps Plus, Inc. v. Varela, 587 U.S. 176, 184 (2019)). The employees’ preclusion theory disregarded this first principle. See slip op. at 10-11. As the Court explained, “[p]recluding an arbitration” to which “the parties agreed. . .— because a different arbitrator in a different proceeding had concluded that an agreement between different parties was unconscionable—would render the parties’ consent meaningless.” Slip op. at 11.

Using Offensive, Non-Mutual Collateral Estoppel to Impose a Bellwether Scheme without Party Consent

The court’s third rationale will likely attract the most attention. The district court’s ruling, the panel said, effectively transformed individualized arbitrations into a binding “bellwether” or class-like device without the parties’ consent. Id. at 5, 11-12. That is significant because Supreme Court precedent has repeatedly held that the FAA does not permit courts or arbitrators to impose class  procedures that alter the “fundamental attributes” of arbitration unless there is a contractual basis to do so. See Epic Sys. Corp. v. Lewis, 584 U.S. 497, 507-09 (2018) (quotation and citations omitted); AT&T Mobility LLC v. Concepcion, 563 U.S. 333, 344 (2011); Stolt-Nielsen, 559 U.S. at 684-87. O’Dell extends that line of authority in an important way. It treats offensive non-mutual preclusion, when used to wipe out separate bilateral arbitrations, as another unauthorized claim aggregation scheme that is inconsistent with the FAA’s consent-based, bilateral structure. See O’Dell, slip op. at 11-13.

The Court said “the imposition here [of an aggregation mechanism] is more concerning than in” prior cases. See slip op. at 11. Because in ordinary class proceedings named representative plaintiffs must “adequately represent” class members. Slip op. at 11. Not so here. “Indeed,” said the Court, under the district court’s logic, just one  arbitration proceeding would be enough to preclude hundreds (or thousands) of other arbitration proceedings.” Slip op. at 12. “That,” remarked the Court, “is a class action stripped of all  its important protective features.” Slip op. at 12. Permitting offensive collateral estoppel to preclude agreed individual arbitrations from taking place “would supplant arbitrations with binding bellwether class actions lacking the procedural safeguards of ordinary class actions.” Slip op. at 12. That would violate the FAA. See Slip op. at 12.

The Court accordingly rejected “this new application of preclusion doctrine as it would be “fundamentally at war with the FAA and undermine Congress’s efforts to protect arbitration from judicial opposition.” Slip op. at 12 (citation omitted).

Implications of the Decision

O’Dell is important for at least three reasons. First, it clarifies that FAA Section 2’s saving clause authorizes only generally applicable contract defenses, not equitable doctrines which apply to litigation generally, as opposed to contract actions specifically. That is especially so, where, as here, the doctrine may, as applied, interfere with arbitration’s key attributes or is otherwise incompatible with arbitration.

Second, O’Dell reminds us that, pursuant to delegation agreements, and in the absence of contractual consent to the contrary, gateway arbitrability disputes are disputes between the parties to the particular individual arbitration agreement at issue. They are, in the absence of an agreement to the contrary, to be decided in an arbitration between those parties, not by proxy using  a bellwether aggregation device.

Here, the district court had already enforced the delegation clauses as written by sending the first four validity disputes to arbitration. Id. at 5-6. Once those arbitrations produced mixed results, the district court used the two invalidity awards as a shortcut to avoid further arbitrations. The Ninth Circuit rejected that move. In practical terms, where the parties have agreed to arbitrate gateway validity questions one by one, courts may not convert a few early rulings into a substitute for resolving each of the remaining individual arbitrations. See slip op. at 10-12.

Third, O’Dell has implications for collective, coordinated, and mass arbitration litigation. Plaintiffs’ counsel will often look for ways to convert favorable early rulings into leverage across a broader claimant pool. Defendants, too, sometimes seek global effect from threshold rulings. O’Dell does not foreclose contractual bellwether arrangements or other consensual aggregation mechanisms. But it does show that courts may not impose them through non-mutual offensive issue preclusion when the parties agreed to bilateral arbitration. Id. at 11-13.

Conclusion

O’Dell should be read as an important Ninth Circuit reaffirmation of three connected FAA principles: arbitration agreements must be enforced according to their terms; not all defenses are generally applicable contract defenses, and arbitration remains a matter of consent, not coercion. Where parties agreed to bilateral arbitration, courts may not use non-mutual offensive collateral estoppel to create a de facto class, bellwether, or other aggregation mechanism to which the parties never agreed.

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, or arbitration-related litigation, then please contact Philip J. Loree Jr., at (516) 941-6094 or PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and associated litigation. A former BigLaw partner, he has 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance- or reinsurance-related, and other, matters.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

The post O’Dell v. Aya Healthcare Services: The Ninth Rejects Non-Mutual Offensive Collateral Estoppel as a Basis for Invalidating Arbitration Agreements appeared first on The Arbitration Law Forum.

The International Institute for Conflict Prevention & Resolution (“CPR”) presented on March 27, 2026, the latest instalment of its long-running hot-topics in arbitration video series: “Hot Topics: The Supreme Court’s March on Arbitration.” Our good friend and colleague Russ Bleemer, editor of Alternatives to the High Cost of Litigation, moderated the presentation. The panelists were our other good friends and colleagues Professor Angela Downes and Richard D. Faulkner— plus the author, Philip J. Loree Jr.

This developments in arbitration video looked backward to the March 25, 2026, Supreme Court argument in Flowers Foods, Inc. v. Brock, No. 24-935 (U.S. argued Mar. 25, 2026), forward to the March 30 argument in Jules v. Andre Balazs Properties, No. 25-83 (U.S. argued Mar. 30, 2026), and sideways to certain consequential circuit decisions, including USAA Savings Bank v. Goff, No. 25-1730, slip op. (7th Cir. Mar. 19, 2026), and Bruce v. Adams & Reese, LLP, No. 25-5210, slip op. (6th Cir. Feb. 25, 2026). This was the eighteenth CPR arbitration video presentation this panel (or most of it), has given during the past four or five years.

The March 27, 2026, Video

The March 27 program is best understood not as a one-off webinar, but as the newest installment in a continuing conversation about where appellate arbitration law is heading. CPR’s December 2025 year-end program had already previewed Jules and Flowers Foods, the two U.S. Supreme Court arbitration-law  cases the Court has thus far accepted this 2025 Term for review.

What the March 27, 2026, Video Shows About the Current State of Arbitration Law

This latest arbitration video shows that the four featured matters are different on their facts but closely related in what they reveal about the present state of arbitration law. None is a frontal assault on arbitration. Each instead concerns a doctrinal pressure point: where post-award litigation belongs, who falls within the FAA’s Section 1 transportation-worker exemption, when courts will conclude that arbitrators exceeded the bounds of the contract by not interpreting it, and how far Congress’s Ending Forced Arbitration Act (“EFAA”) carve-out extends once sexual-harassment or sexual-assault claims are pleaded together with other claims not covered by the EFAA.

In that respect, Jules remained the centerpiece. Jules asks whether a federal court that properly exercised federal question jurisdiction over an action, and then stayed that action pending arbitration under FAA Section 3, may later adjudicate post-award FAA motions without having a new and independent basis for subject-matter jurisdiction. The question is narrow only on the surface. In practical terms, it concerns whether a federal court that has federal question jurisdiction over the merits dispute, and pursuant to FAA Section 3 stays  the litigation pending arbitration of the merits dispute, may, at the request of one of the parties, and without having a new and independent basis for subject matter jurisdiction (such as diversity), complete the job after the award returns, or whether the parties must instead start over in state court. The CPR panel’s discussion came only days before the March 30 argument, which made the presentation a timely and useful preview of one of the Court’s most important FAA jurisdiction-related  cases since Badgerow v. Walters, 596 U.S. 1 (2022), and Smith v. Spizzirri, 601 U.S. 472 (2024).

Readers who view the March 27, 2026 presentation and the subsequent March 30, 2026 oral argument can see that the panelists’ comments were largely or entirely on the mark. CPR Speaks followed the argument with a very thoughtful same-day report, Supreme Court Hears Case on Federal Courts’ Powers to Confirm Arbitration Awards. A decision likely will issue before the close of the October 2025 Term in late June.

Flowers Foods concerns the scope of FAA Section 1’s transportation-worker exemption. But both Jules and Flowers Foods share an important feature: both concern where the FAA stops, and both therefore affect whether arbitration disputes will be resolved in court, in arbitration, or in some jurisdictional or procedural limbo between the two. The March 27 program accordingly framed Flowers not as an isolated exemption dispute, but as part of the Court’s broader and continuing effort to define the FAA’s boundaries with greater textual precision.

The panel also highlighted two significant circuit courts of appeals decisions that underscore how much important arbitration doctrine is shaped outside the U.S. Supreme Court. In Goff, the Seventh Circuit addressed a rare circumstance in which a court vacated an award on the ground that the arbitrator had, disregarded the parties’ contract and thus did not even arguably interpret it. That issue is significant not because courts often vacate awards on that basis, but because they rarely do. Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 569, 572-73 (2013), made clear how narrow the path is for setting aside an award under FAA Section 10(a)(4) when the arbitrator is at least arguably construing the agreement. A decision like Goff therefore commands attention because it tests the line between genuine contract interpretation and an arbitrator’s substitution of her own notions of “[economic] justice” or “sound policy.” See id. at 569; Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 672, 675 (2010).

Bruce, in turn, is one of the most important circuit-court decisions construing the EFAA. The Sixth Circuit adopted what is sometimes called the entire-case rule: when a case includes an EFAA-covered sexual-harassment dispute, the statute renders the arbitration agreement unenforceable as to the whole case, not merely as to the EFAA-covered claims. See Bruce, slip op. at 17-19. Whether one agrees or disagrees with that reading, the decision is consequential because it gives the statute a broader practical effect than a claim-by-claim approach would have done. The March 27 CPR program usefully placed Bruce in the same conversation as Jules, Flowers Foods, and Goff because all four cases illuminate a common theme: appellate courts are increasingly defining arbitration law through technical yet consequential disputes over scope, forum, remedy, and statutory carve-outs, rather than through  generalized debates about whether the federal policy in favor of arbitration should in a given case drive an arbitration-friendly outcome.

The presentation also illustrated the value of continuity among panelists. Professor Downes, Rick Faulkner, Russ Bleemer, and the author bring different vantage points to the discussion: academic, arbitral, appellate- and district-court practitioner, and editorial. Because the same group has returned repeatedly over several years, the programs have developed into something more useful than mere episodic commentary.

For readers of The Arbitration Law Forum, the key takeaway is straightforward. The March 27 program is worth watching not only for its discussion of the four featured cases, but also for the broader picture it paints. The doctrinal stakes of the Supreme Court’s arbitration docket are larger than they first appear. Lower federal courts continue to generate important arbitration law at a brisk pace. And many of the most consequential disputes now concern not whether arbitration will or should be enforced in the abstract, but how courts define the boundaries of arbitral power, arbitral forum, and arbitral exception. This eighteenth CPR presentation captures, in one discussion, several of the issues likely to shape arbitration-law practice in the months and years ahead.

Contacting the Author

If you have any questions about this article, arbitration, arbitration law, or arbitration-related litigation, then you may contact the author at pjl1@loreelawirm.com or +1 (516) 941-6094.

Philip J. Loree Jr. is principal of The Loree Law Firm, a New York attorney who focuses his practice on arbitration and arbitration-law matters. The Loree Law Firm’s website is https://loreelawfirm.com/.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

The post CPR’s March 27 Appellate Arbitration Video Panel: Jules, Flowers Foods, Goff, and Bruce appeared first on The Arbitration Law Forum.

The presence of a sexual harassment claim in a case featuring otherwise arbitrable claims may mean that Chapter 4 of the FAA renders the entire case non-arbitrable. In our recent overview of the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of  2021 (the “EFAA”),  we identified the statute’s arguably most consequential open question: when a complaint includes a covered sexual-harassment dispute and non-covered claims, does the EFAA keep the whole lawsuit in court, or only the harassment claim, thereby effectively bifurcating the dispute-resolution process?

The U.S. Court of Appeals for the  Sixth Circuit recently  answered that controversial open question, becoming the first U.S. Circuit Court of Appeals to do so. In Bruce v. Adams & Reese, LLP, No. 25-5210, slip op. (6th Cir. Feb 25, 2026), the U.S. Court of Appeals for the Sixth Circuit—in a 2-1 opinion written by U.S. Circuit Judge Karen Nelson Moore— held that, under the Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of  2021 (the “EFAA”), a single plausibly pleaded sexual-harassment claim can keep an entire mixed-claim employment case out of arbitration, even if the other non-harassment/non-assault claims would otherwise be arbitrable.

Bruce places the first federal-circuit-court-of-appeals imprimatur on the broad reading of Section 402(a), which several district courts have adopted, and which we flagged in our earlier article as a likely flashpoint. It also raises the stakes of the pleading-stage fight over whether the plaintiff has adequately alleged a covered sexual-harassment or sexual-assault dispute.

In Bruce, adequate pleading was linked to arbitrability: because the plaintiff plausibly pleaded a Title VII hostile-work-environment claim, the employer could not compel arbitration of her ADA claims, which would otherwise have been arbitrable.

What Happened in Bruce

Bruce worked in a law-firm liquor practice that moved from Firm A to Firm B. Bruce alleged that, after her move to Firm B, a supervising lawyer, R. Pinson, continued making sexual comments and jokes to and about her, including repeated remarks about sending her to clients “in a short skirt,” repeatedly saying “Hoe no” to her instead of “Oh no,” and making a comment about how “hot” it would be to see her and another paralegal engage in sexual acts on his desk. She also alleged that he made inappropriate comments about her appearance, clothing, private life, and later her engagement and relationship. According to the complaint, the conduct was ongoing, occurred in work-related conversations and team meetings, and continued until her termination.

Bruce also asserted Americans with Disabilities Act (“ADA”) claims arising from alleged failures to accommodate sleep-related disabilities and from her eventual termination. Firm B moved to dismiss the sexual-harassment claim  and to compel arbitration of the ADA claims under an arbitration agreement. The district court denied both requests, holding that Bruce had plausibly stated a sexual-harassment claim and that the EFAA foreclosed arbitration of the entire action. Firm B took an interlocutory appeal. See 9 U.S.C. § 16(a)(1)(C); slip op. at 5-6.

The Sixth Circuit’s Two Holdings

Before the Court were two issues: whether the district court erred in concluding that (a) Bruce had plausibly pleaded a Title VII hostile-work-environment claim based on her allegations of sexual harassment; and (b) the EFAA barred arbitration of Bruce’s entire case, including her ADA claims.  The Sixth Circuit held that both of the district court’s conclusions were correct.

First, it held that Bruce had plausibly alleged a hostile-work-environment sexual-harassment claim against Firm B. Slip op. at 11-15. The court emphasized that it was evaluating the complaint at the pleading stage, not on summary judgment, and that Rule 8 does not require a plaintiff to plead every offensive comment with granular detail. The court also drew an important line: conduct alleged to have occurred at Firm A could not be attributed to Firm B, so the Court court analyzed only what the complaint alleged to have occurred after Bruce and Pinson joined Firm B. But even with that limitation, the Court found the allegations sufficient. The complaint described repeated sexualized comments, alleged that they were ongoing and humiliating, and asserted that Bruce altered her behavior at work to avoid Pinson. That was enough, said the panel majority, to plausibly plead conduct that was sufficiently severe or pervasive to create a hostile work environment.

Second, and more significantly for arbitration law, the court held that the EFAA barred arbitration of Bruce’s entire case, including her ADA claims. Slip op. at 21. The court treated that issue as one of statutory text, not arbitration policy. Once Bruce plausibly alleged a covered sexual-harassment dispute, Section 402(a) made the arbitration agreement unenforceable “with respect to a case” filed under federal, tribal, or state law that “relates to” that dispute. Slip op. at 16-18. For the Sixth Circuit, that language means what it says. See slip op. at 16-21.

Why the Sixth Circuit Adopted the EFAA Entire-Case Rule

 The court’s reasoning was straightforward and textual.

FAA Section 401 defines a “sexual harassment dispute” as “a dispute relating to conduct that is alleged to constitute sexual harassment under applicable Federal, Tribal, or State law.” 9 U.S.C. § 401(4). Section 402(a) says “at the election of the person alleging conduct constituting a sexual harassment dispute or sexual assault dispute . . . no predispute arbitration agreement . . . shall be valid or enforceable with respect to a case which is filed under Federal, Tribal, or State law and relates to the sexual assault dispute or the sexual harassment dispute.” 9 U.S.C. § 402(a) (emphasis added).

The key word, said the Court, was “case.” Section 402(a) does not say that a pre-dispute arbitration agreement is unenforceable only as to a covered “claim” or “cause of action.” It says the agreement is unenforceable “with respect to a case.” The ordinary meaning of “case,” the court explained, is an entire civil action or proceeding, not an individual claim or count within it. The court reinforced that point by contrasting “case” with “claim,” noting that claims are component parts of a suit, while a case is the whole suit. See slip op. at 17-18.

The court then construed “case” together with the statute’s other important phrase: “relates to,” an expansive descriptor. If a lawsuit contains a covered sexual-harassment claim, then the “case” “relates to” a sexual-harassment dispute. On that textually-based yet expansive reading, if the complaint adequately pleads a covered dispute, the arbitration agreement is unenforceable not only as to that dispute but also as to the other claims in the case. Slip op. at 17-18.

The Court’s reasoning, as a practical matter, ensures that if a sexual harassment or sexual assault dispute is part of a case, then all other claims in the case are, at the election of the person alleging sexual harassment or assault, not arbitrable.

A limiting principle, if there is one, might be based on alleged improper joinder. If a claim was joined in a case but should not have been—and should have been brought in a different case that does not relate to the  sexual assault or sexual harassment dispute—then perhaps the “relates to” requirement is not met. One could argue that the “case” did not encompass the otherwise arbitrable claims and that it thus did not relate to those claims.

But joinder appears to be of limited utility as a potential limiting principle. The federal-court joinder rules are so permissive that improper joinder would  be the rare exception, not the rule. See Fed. R. Civ. P. 18(a) (“A party asserting a claim, counterclaim, crossclaim, or third-party claim may join, as independent or alternative claims, as many claims as it has against an opposing party”); see also Fed. R. Civ. P. 18(b).

The Sixth Circuit also relied on statutory structure for its arbitrability conclusion. Congress, the court reasoned, had various options open to it if it intended to limit the effect of the EFAA to sexual harassment and assault claims only. It availed itself of none.

It might have used the term “claim” instead of “case.” Slip op. at 18-19. It could have omitted the phrase “a case which is filed under Federal, Tribal, or State law and relates to” the covered dispute. Slip op. at 18-19. Or it could have borrowed wording from other statutes that bar arbitration only of specific disputes arising under a particular statutory section. Slip op. at 18-19. Congress did none of those things.

Firm B’s policy arguments did not persuade the majority. It invoked the federal policy favoring arbitration and argued for claim-by-claim arbitrability on that basis. Slip op. at 19-20. The court responded that the presumption applies to arbitration-agreement interpretation, not to the rewriting of an unambiguous statutory exception enacted by Congress. And it rejected the suggestion that giving effect to the ordinary meaning of the text would produce absurd consequences. Slip op. at 20-21. To the contrary, explained the court, keeping claims that are part of the same case together may further the EFAA’s purpose by avoiding the cost and deterrent effect of dual-track proceedings.

The majority said the text was clear and outcome determinative. See slip op. at 16, 19-21. That aspect of Bruce should significantly influence future decisions. Employers arguing for a narrower reading will now have to overcome not just district-court authority in the Sixth Circuit and elsewhere, but a published, well-reasoned Circuit Court of Appeals opinion grounded in textual analysis.

To be sure, the opinion was 2-1, with Circuit Judge Amul R. Thapar dissenting. Judge Thapar’s opinions typically embrace textualism, and so one might assume his dissent would undermine the majority’s textual interpretation. But that does not  appear to be so.

Judge Thapar’s dissent did not address the interpretation issue because, in his view, no hostile-work-environment claim was adequately pleaded. Slip op. at 22-25 (Thapar, J., dissenting). All three judges recognized that, if the hostile-work-environment claim was not adequately pleaded, then there would be no EFAA issue and the remaining claims would be subject to arbitration. Slip op. at 6, 25. It was therefore unnecessary for Judge Thapar to opine on whether the majority’s textualist interpretation was correct.

Sexual Harassment and Sexual Assault Claims: The Pleading Issue Is Now a Gateway EFAA-Applicability Question for Judicial Resolution

Bruce is not only about the scope of the EFAA. It also shows why, in an EFAA case, the sufficiency of the sexual-harassment or sexual assault allegations is effectively a question of arbitrability. (For more on questions of arbitrability, see here.)

The Sixth Circuit declined to decide what standard governs the EFAA’s requirement that the plaintiff “alleg[e] conduct constituting” a sexual-harassment or sexual-assault dispute. Some lower courts have treated that as essentially a Twombly/Iqbal plausibility inquiry; another has suggested a less demanding, nonfrivolous-basis standard. See slip op. at 8-9 (citations omitted). The Sixth Circuit left that debate for another day because Bruce’s allegations were sufficient even under the higher plausibility standard, and because Bruce herself had not argued for a lower one. Slip op. at 7-9.

Bruce does not settle the pleading-standard debate under the EFAA. But it does clarify that, at least where a plaintiff plausibly states a covered harassment claim, the EFAA can pretermit arbitration of the entire case. Because the EFAA expressly overrides any attempt to delegate EFAA-applicability questions to arbitrators, courts, not arbitrators, get to answer these questions, and delegation does not provide a workaround for arbitration proponents. See 9 U.S.C. § 402(b).

That means defendants will have strong incentives to attack the allegedly covered claims aggressively at the Rule 12 stage, and plaintiffs will have correspondingly strong incentives to plead those claims adequately.

Judge Thapar’s thoughtful dissent underscores the point. In his view, Bruce alleged only three specific, allegedly harassing comments during the relevant period at Firm B and then relied on what Judge Thapar considered to be conclusory assertions that the conduct was ongoing and inappropriate. His dissent opined that the complaint was inadequately pleaded under Title VII pleading rules and noted that, if the sexual-harassment claim were dismissed, the ADA claims would go to arbitration. See slip op. at 22-25. The dissent therefore showcases the practical battleground Bruce creates: in many mixed-claim cases, the motion to dismiss the covered harassment claim may effectively determine arbitrability.

What Bruce Does Not Decide

Bruce does not purport to answer to every EFAA question.

It does not hold that any complaint containing the words “sexual harassment” or “sexual assault” automatically defeats arbitration. The plaintiff still must allege a covered dispute sufficiently to survive whatever threshold standard applies. In Bruce, the court found that threshold satisfied. That may not be so in other cases.

Bruce also does not purport to address EFAA’s temporal questions. The statute applies only to disputes or claims that “arise or accrue” on or after March 3, 2022, and appellate courts have already wrestled with what those temporal terms mean. That was not the focus of Bruce but of the earlier Sixth Circuit opinion in  Memmer v. United Wholesale Mortgage, LLC, 135 F.4th 398, 404–09 (6th Cir. 2025), and other cases. (See here.) (Judge Karen Nelson Moore, who wrote the Bruce opinion, also wrote the Memmer opinion, and Judge Thapar, who dissented in Bruce, also dissented in Memmer.)

The Court also did not decide the broader disagreement over whether EFAA applicability requires only a non-frivolous allegation or a plausibly-pled claim.

But Bruce narrows the field considerably. Within the Sixth Circuit, the once-open “case versus claim” question now has a clear answer: if a covered sexual-harassment or sexual assault dispute is sufficiently alleged, then at plaintiff’s option, the whole case stays in court.

Practical Implications for Companies, Employees, and Counsel in Cases Involving Sexual Harassment or Sexual Assault Allegations

For companies and in-house counsel, Bruce is a reminder that arbitration agreements are not reliably severable at the claim level in mixed-claim EFAA cases. A single viable sexual harassment or sexual assault claim may now keep related disability, retaliation, discrimination, wage, contract, or other employment claims in court if they are part of the same case. Employers should therefore review arbitration programs with realistic expectations about what they can and cannot accomplish after the EFAA. Just as important, employers should continue to invest in appropriate prevention, reporting channels, prompt investigations, and documented remedial action. Bruce makes employer forum risk more acute when a harassment allegation is both plausible and joined with other claims that do not involve EFAA covered disputes.

For outside defense counsel, Bruce increases the importance of early merits analysis. In the Sixth Circuit, a motion to dismiss the covered harassment claim is no longer simply a pleading-adequacy motion (albeit with arbitration waiver implications); it may determine whether the employer gets to arbitrate at all. Counsel should assess at the outset whether the harassment allegations are plausibly pleaded, whether they are properly attributable to the defendant employer, and whether non-covered claims may be vulnerable on other grounds in Court.

They should also pay careful attention to the extent to which the EFAA may modify or render inapplicable the post-Morgan/Sundance waiver calculus. For example, in the Sixth Circuit in particular, making a motion to dismiss on the merits may compel a waiver finding. (See our recent article concerning the Sixth Circuit’s Kloosterman case, in which  Richard D. Faulkner, Esq.,  Charles “Chuck” Bennett, and the author, Philip J. Loree Jr., prepared and filed a “Brief of Arbitration Practitioners and Scholars as Amici Curiae in Support of Plaintiff-Appellant” (Dkt. #55). The author was the Sixth Circuit counsel of record for this amicus brief.)

Where the EFAA is implicated, the risk of waiving arbitration by making a motion to dismiss the EFAA covered claim(s) is not the proper focus. If the employer is going to arbitrate any of the claims in the case, it must knock out that EFAA claim and that is likely going to require a motion to dismiss the EFAA covered claim coupled with a motion to stay litigation and compel arbitration of the other claims. The key is getting the sexual harassment or sexual assault dispute out of the case so that arbitration of the other claims can be compelled. Of course, care must be taken to avoid waiving arbitration of the other claims, which could happen if the employer attempted to dismiss those other claims, rather than simply to stay litigation and compel arbitration of them.

For employees and plaintiffs’ counsel, Bruce confirms that the EFAA can be a powerful tool for employees who wish to keep all their claims in Court even though they agreed to arbitrate all or many of them. If a viable covered sexual-harassment dispute is well pleaded, the other claims in the suit may remain part of it. But Bruce also cautions plaintiffs not to rely on labels. The complaint should allege concrete facts about the who, what, where, and how of the harassment, enough to survive an early pleading attack. Plaintiffs’ counsel should also think carefully about joinder, timing, the universe of potential claims, and, what claims should from the outset be included in the suit, especially if the goal is to avoid arbitration of these claims.

For all counsel, Bruce reinforces a broader lesson from the EFAA’s first wave of cases: forum fights tend to be front-loaded.

Conclusion

In our earlier EFAA article, we noted that the EFAA’s reference to a “case” rather than a “claim” can prove decisive. Bruce drives that point home on the circuit court of appeals level. The Sixth Circuit has now held that, when a plaintiff plausibly alleges a covered sexual harassment dispute, the EFAA renders a pre-dispute arbitration agreement unenforceable as to the entire lawsuit, not just the harassment count. That is a substantial shift in employee leverage, pleading and Rule 12 strategy. For employers it signals increased case-management-related risk.

Employers should treat Bruce as an important development, not a technical one. Employees and their counsel should treat it as confirmation that the EFAA can keep single-lawsuit employment claims together in court, provided at least one is a well-pleaded sexual-assault or sexual-harassment dispute. And everyone drafting, enforcing, or resisting arbitration agreements in employment cases should assume that, in the Sixth Circuit, the EFAA entire-case rule has arrived and is probably here to stay.

It would not surprise the author if eventually a circuit split on the entire-case rule emerges. But the textualist nature of the Sixth Circuit’s reasoning may make it a poor candidate for a U.S. Supreme Court overruling. Time will tell (as it always does).

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, or arbitration-related litigation, then please contact Philip J. Loree Jr., at (516) 941-6094. PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and associated litigation. A former BigLaw partner, he has 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance- or reinsurance-related, and other, matters.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

The post Arbitration and Sexual Harassment Disputes: The Sixth Circuit Adopts the EFAA Entire-Case Rule in Bruce v. Adams & Reese appeared first on The Arbitration Law Forum.

The Fourth Circuit formally adopted a rule several circuits already apply: if an “independent” lawsuit is really an attempt to undo an arbitration outcome, it is an impermissible collateral attack on the award and will be dismissed. That decision reinforces the exclusivity and finality of the Federal Arbitration Act (“FAA”)’s confirmation, vacatur, and modification regime.

Separately, the Court made a practical point concerning Section 10(a)(3) prejudicial, procedural misconduct: an arbitrator does not commit “misconduct” by refusing to hear evidence when the arbitration agreement itself limits what is considered the evidentiary record and bars adversarial discovery. The same may be true when, as was the case before the Court, the arbitrator’s standard of review is deferential, and the proffered evidence is not material to the narrow question before the arbitrator.

The Fourth Circuit’s Adoption of the Impermissible Collateral Attack Rule: What Transpired?

The Center for Excellence in Higher Education (CEHE) ran schools accredited by the Accreditation Alliance of Career Schools and Colleges (the Alliance). After years of below-benchmark graduation and employment outcomes, CEHE’s system was placed on probation and repeatedly warned about losing accreditation. The Alliance withdrew accreditation.

CEHE appealed internally, then demanded binding arbitration as contemplated by the parties’ agreement. CEHE sought broad discovery and to introduce evidence outside of that deemed part of the internal appellate record, including information about how Alliance evaluated other schools for accreditation. The arbitration agreement limited arbitration to the record before the internal Appeals Panel and prohibited adversarial discovery. The arbitrator enforced those limits and made an award upholding the accreditation withdrawal.

The Alliance’s accreditation decisions were subject to deferential review only. That, in combination with the FAA, meant two tiers of deference were owed: The arbitrator had to review the Alliance’s decisions deferentially and, as is always the case under Section 10 of the FAA, a court reviewing the arbitrator’s award had to defer to the already deferential award.

CEHE filed in federal court: (i) a motion to vacate and, as part of the same filing, (ii) a complaint alleging due process violations and tortious interference. CEHE sought, in substance, to reverse the withdrawal of accreditation and recover damages flowing from it.

The district court denied vacatur and, as respects the complaint, granted judgment on the pleadings, treating the submission of those papers as an impermissible collateral attack on the award. The U.S. Court of Appeals for the Fourth Circuit affirmed in Center for Excellence in Higher Educ. v. Accreditation Alliance of Career Schs. & Colleges, __ F.4th ___, 25-1372 , slip op. at 2 (4th Cir. Feb 05, 2026)

Principal Issues Addressed

The Fourth Circuit’s decision focused on two issues. First, the scope of relief for arbitrator prejudicial procedural misconduct under Section 10(a)(3) in cases where the arbitration agreement limits what comprises the record, forecloses adversarial discovery, or the arbitrator’s standard of review is deferential. (Read more about Section 10(a)(3) here, here, and here.)

Second, when is a post-award lawsuit not a genuinely independent claim but an impermissible collateral attack on the award, that is, an end-run around FAA Sections 10–11?

Contractual Limits on Record Content, Evidence, and Discovery, or a Deferential Standard of Review Imposed on the Arbitrator, Can Foreclose FAA Section 10(a)(3) Prejudicial Procedural Misconduct Claims

CEHE’s motion to vacate asserted the arbitrator denied CEHE a fair opportunity to present “pertinent and material” evidence material evidence by refusing discovery and excluding comparative-accreditation evidence. Center for Excellence, slip op. at 9; 9 U.S.C. § 10(a)(3).

The Fourth Circuit rejected that argument for two reasons. First, the excluded “other schools” material was not “pertinent and material” to the arbitrator’s task. The arbitration was not a free-ranging arbitration featuring de novo review of the Alliance’s decision making. The arbitrator was tasked with determining whether the record adequately supported the Alliance’s accreditation decision, and in making that determination the arbitrator determined that Fourth Circuit precedent required the arbitrator to defer to the Alliance’s decision. Center for Excellence, slip op. at 12-15 (citation omitted). So even assuming evidence about other schools’ accreditation experiences might have rhetorical force or evidentiary value in the context of a different dispute resolution framework, the Court concluded that, considering the deferential standard of review, evidence about other Alliance accreditation decisions was irrelevant. Center for Excellence, slip op. at 10-11, 14-15.

Second, the agreement itself foreclosed the arbitrator from considering the evidence the school argued the arbitrator had to hear or from permitting the adversarial discovery the school argued was required. Center for Excellence, slip op. at 11.  This is a key doctrinal point practitioners should note: Evidence cannot be “pertinent and material to the controversy” under Section 10(a)(3) if the arbitration agreement itself prohibits the arbitrator from considering that evidence. While the Court did not address this point, if the school wanted to challenge those limitations it should have attempted an FAA Section 2 pre-arbitration unconscionability challenge prior to the commencement of the arbitration. See 9 U.S.C. § 2; Doctor’s Assocs., Inc. v. Casarotto, 517 U.S. 681, 687 (1996) (under FAA Section 2, a party may challenge arbitration agreement on unconscionability grounds applicable to contracts generally). The author expresses no view on whether such a challenge might have succeeded.

The arbitration agreement expressly stated that the arbitrator could not consider evidence not in the Appeals Panel record and prohibited adversarial discovery. An arbitrator who enforces those terms is not “refusing to hear” evidence in the procedural misconduct sense; he or she is doing what the parties contracted for. That’s the arbitrator’s job.

This is a recurring theme in FAA jurisprudence: the FAA regulates egregious process breakdowns, but—apart from leaving the door open to a party seeking judicial reformation of an arbitration agreement under Section 2 in an appropriate case—it does not authorize a court to rewrite the parties’ arbitration agreement simply because one side is, after the fact, unhappy with the bargain it struck. See Aviall, Inc. v. Ryder System, Inc., 110 F.3d 892, 895-97 (2d Cir. 1997).

The Big Development: the Fourth Circuit Adopts the “Impermissible Collateral Attack” Rule

The more consequential arbitration-law holding was the Fourth Circuit’s adoption of the impermissible collateral attack rule.

The Premise: FAA §§ 10–11 Provide the Exclusive Route to Overturn or Undo an Award

The court treated it as common ground that a litigant seeking to vacate or modify an award must proceed under the FAA’s narrow vacatur/modification framework—principally §§ 10 and 11. FAA exclusivity and finality has a practical purpose: binding arbitration is designed to resolve the parties’ dispute expeditiously and conclusively.

The Court found adoption of the “impermissible collateral attack rule” necessary to preserve that presumed exclusivity and finality. Allowing disappointed parties to repackage vacatur theories as “independent” tort or constitutional claims would destroy finality, which could make arbitration a less attractive and more expensive alternative to court litigation.

How to Spot a Collateral Attack: Look at Wrongdoing, Harm, and Requested Relief

The Fourth Circuit adopted a functional test used by other circuits, focusing on:

• The Alleged Wrongdoing. Is it the type of defect that would support vacatur under Section 10 (or modification under Section 11)?
• The Harm. Does it flow from the award’s effect?
• The Requested Relief. Is it, in essence, the relief vacatur would provide?

Applied to CEHE, each of the three supported application of the “impermissible collateral attack” rule:

• The alleged wrongdoing was essentially “the decisionmaker refused to consider evidence”—classic § 10(a)(3) territory.
• The harms (lost students, reputational damage, financial losses) flowed from the accreditation loss the arbitrator upheld and CEHE sought to overturn.
• The requested relief—especially injunctive relief reversing the withdrawal—tracked what vacatur would accomplish.

The court also emphasized that a party cannot sanitize an impermissible collateral attack by tweaking remedies. A damages label does not save a claim when the theory of injury is an allegedly  defective arbitration process.

The Punchline: If it’s a Collateral Attack, the Whole Complaint is Tossed

Because the complaint was treated as a collateral attack, it was dismissed in toto, including tortious interference claims that at a cursory glance might appear “independent.”

The breadth of that remedy is significant. It signals that courts will not allow plaintiffs to proceed count-by-count where the thrust of the lawsuit is to overturn the arbitration outcome.

Doctrinal Implications of the Fourth Circuit’s Adoption of the Impermissible Collateral Attack Rule

Center for Excellence does more than announce a new label for a familiar concept. By adopting an “impermissible collateral attack” rule, the Fourth Circuit has supplied a doctrinal framework for defining when post-award litigation concerning claims allegedly independent from a Section 10 or 11 challenge is, in practical effect, an attempt to unwind the award that has already been or would be barred by Sections 9-11 of the FAA.  The decision’s implications extend beyond accreditation disputes and are likely to influence how parties plead, defend, and adjudicate post-award claims in the Fourth Circuit and perhaps elsewhere.

FAA Exclusivity, Finality, and the “Functional” Inquiry

The Court’s central move is to treat FAA Sections 10–11 as the exclusive doctrinal avenue for judicial relief that would set aside, modify, or otherwise negate an arbitral award. That premise is hardly novel, but Center for Excellence gives it operational content by insisting on substance over form. Courts are instructed to look past pleading labels and ask whether the alleged wrong, the asserted injury, and the requested relief are, in substance, a bid to obtain what vacatur or modification would provide (or would have provided had vacatur or modification been granted).

This substance over form approach is significant because it diminishes the viability of a common post-award strategy: coupling a narrow FAA vacatur motion with broader common-law or constitutional claims that seek to re-create, in a new procedural posture, the merits contest that the arbitration ended. Under Center for Excellence, it will be harder to argue that merely changing the cause of action (for example, to tortious interference or due process theories) changes the essential character of the relief sought where the litigation’s gravitational center remains the arbitral outcome.

Collateral Attack Doctrine as Distinct from Claim and Issue Preclusion

The impermissible collateral attack rule overlaps conceptually with res judicata and collateral estoppel, but it is not simply a repackaging of those doctrines. Preclusion asks whether a claim could have been or an issue was litigated and resolved in a prior adjudication. The impermissible collateral attack rule asks a different question: whether the new lawsuit is an improper vehicle for challenging the arbitral award at all, given the FAA’s exclusive remedial structure.

That distinction has practical doctrinal consequences. Preclusion analysis can be fact-intensive (identity of parties, privity, finality, opportunity to litigate, and so forth), and it sometimes requires careful attention to what the arbitral tribunal actually decided. The collateral attack rule can, in appropriate cases, be applied earlier, more categorically, and perhaps with greater ease, because it turns on the nature of the alleged wrong and the relief sought. Center for Excellence therefore provides defendants with an additional—and sometimes simpler—path to dismissal independent of conventional preclusion defenses.

Pleading-Stage Tool that Reinforces the FAA’s Narrow Review

The Fourth Circuit’s approach also matters procedurally: it confirms that a court may identify an impermissible collateral attack at the pleadings stage, without permitting the case to proceed into discovery and merits motion practice. That is consistent with the FAA, which favors speed and finality in award enforcement and sharply limits post-award judicial review. See 9 U.S.C. §§ 6, 9-11.

In that respect, the decision is likely to influence motion practice. Where a complaint is tethered to the award—because the harm is framed as the consequences of the award’s effects and the relief is framed to reverse, enjoin, or effectively nullify those effects—courts have a doctrinal basis to terminate the litigation quickly and early. Conversely, plaintiffs seeking to survive dismissal will need to plead with care, demonstrating that the asserted injury and requested remedy do not depend on re-litigating the arbitral dispute or undercutting the award’s finality.

The Substance of the Remedy Sought Will Often Be Decisive

Center for Excellence highlights that focusing on substance and practicality can drive effective arbitration-law (and other legal) doctrine. Injunctive or declaratory relief that would “reverse” the practical effects of an award is, predictably, the easiest target for a collateral attack defense. But the Court made clear that damages claims are not immune from scrutiny. Where the damages theory is that the arbitration process was defective and the plaintiff’s economic losses flow from the award’s operation, a damages label will not transform the lawsuit into an independent claim.

That focus on the practical effects of the remedies sought will likely shape how plaintiffs draft complaints and how defendants frame dismissal motions. If the requested relief would require the court to adjudicate—directly or indirectly—the propriety of the arbitral process or the correctness of the arbitral outcome, the collateral attack doctrine supplies a doctrinal basis for dismissal even where traditional preclusion doctrines might require more granular analysis.

Interaction with FAA Section 10(a)(3) and Contractually “Closed” Records

Finally, the decision’s Section 10(a)(3) discussion complements the collateral attack holding. The Court treated the arbitration agreement’s limits on discovery and the evidentiary record as materially shaping what can qualify as “pertinent and material evidence” for procedural misconduct purposes. Where parties contract for a closed record (or for review limited to an internal administrative record), an arbitrator’s enforcement of those limits will generally not supply a Section 10(a)(3) hook for vacatur. The same is true when the standard of review governing the arbitrator’s decision making is deferential, as it was here.

Taken together, these strands of the opinion underscore a consistent doctrinal theme: parties who bargain for procedural limits on arbitration—or arguably for deferential review by the arbitrator—should expect courts to enforce the bargain, both by (i) declining to expand Section 10(a)(3) into a vehicle for reengineering the agreed process and (ii) rejecting attempts to achieve the same end through post-award litigation framed as something other than an FAA vacatur or modification proceeding.

Conclusion

Center for Excellence is a clean Fourth Circuit adoption of a rule that arbitration practitioners often assume exists everywhere—but which has not been formally embraced by all other circuits. The rule strengthens award finality by closing a common loophole: a collateral attack on an award that is disguised as something else.

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, or arbitration-related litigation, then please contact Philip J. Loree Jr., at (516) 941-6094. PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and associated litigation. A former BigLaw partner, he has 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance- or reinsurance-related, and other, matters.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

The post You Only Get One Shot at Vacatur: The Fourth Circuit Adopts the “Impermissible Collateral Attack” Rule | Center for Excellence in Higher Educ., Inc. v. Accreditation Alliance of Career Schools & Colleges, ___ F.4th ___, No. 25-1372, slip op. (4th Cir. Feb. 5, 2026) appeared first on The Arbitration Law Forum.

Default in the FAA Section 3 context is not limited to litigation conduct that establishes waiver of arbitration. In Myers v. Papa Texas, LLC, ___ F.4th ___, No. 25-2020, slip op. (10th Cir. Feb. 12, 2026) the U.S. Court of Appeals for the 10th Circuit made three key points about Section 3 default in a nonpayment of fees case:

1. A party that fails to pay required arbitration fees and thereby causes the arbitration administrator (here, the American Arbitration Association (the “AAA”) to close the case risks being found “in default in proceeding with such arbitration” under FAA § 3, allowing the district court to lift an the stay of litigation and resume the litigation.
2. In the Tenth Circuit, the “default” inquiry under § 3 is not the same thing as waiver-by-litigation (the usual “did you litigate too much before seeking arbitration?” question). A party can avoid waiver-by-litigation and still default in arbitration by not performing the steps needed to arbitrate, especially payment of arbitration fees.
3. If you want arbitration, you must be prepared to fund it, comply with the forum’s rules, and build a record showing any inability to pay or good-faith efforts to make arrangements.

What Happened

Luke Myers brought an action against his employer, Papa Texas, LLC, in federal district court. Papa Texas obtained a stay pending arbitration under FAA § 3, and the case moved toward arbitration administered by the AAA.

But arbitration is not free, particularly for business entity defendants. It runs on process—and fees, which (all too often) can be quite substantial.

The AAA demanded payment. Papa Texas did not tender it. After repeated notices and extensions, AAA closed the arbitration for nonpayment—what would one expect? Myers understandably wanted to proceed to litigation and so he asked the Court to lift the stay. Why? Because, said Myers, Papa Texas had “default[ed] in proceeding with arbitration” within the meaning of Section 3.

The district court agreed and lifted the stay. Papa Texas appealed and the Tenth Circuit affirmed.

What Arbitration-Law Issues did the Tenth Circuit Principally Address?

Myers resolved two closely-related and important FAA issues:

1. What “default in proceeding with such arbitration” means under FAA § 3 when arbitration is derailed by nonpayment; and
2. Whether and to what extent that § 3 “default” inquiry differs from waiver-by-litigation-conduct, especially after the U.S. Supreme Court’s instruction that courts must avoid arbitration-specific procedural rules? See Morgan v. Sundance, 596 U.S. 411, 414, 419 (2022).

Discussion

FAA § 3: “Default in Proceeding with such Arbitration” is a Real, Independent Off-Ramp for Arbitration Opponents

Most FAA practitioners instinctively think about waiver when a party engages in litigation conduct that is materially inconsistent with their agreement to arbitrate. But FAA § 3 contains specific limiting language that contemplates waiver not only by litigation conduct but other kinds of “default:” a court “shall…stay the trial…until such arbitration has been had in accordance with the terms of the agreement, providing the applicant for the stay is not in default in proceeding with such arbitration.” 9 U.S.C. § 3.

That last clause is not window dressing or surplusage. The Tenth Circuit treated it as an independent basis to terminate a previously ordered stay and to allow the litigation to proceed. (For more on Section 3 default, see here , here, and here.)

Default is not Limited to “Waiver by Litigation”

Papa Texas tried to reframe the § 3 default question as if it were the familiar waiver framework: multi-factor tests, litigation conduct, and (prior to Morgan) prejudice. But the Tenth Circuit rejected this category error. Default in arbitration is about whether the party who asked the court to halt litigation and send the dispute to arbitration proceeded with arbitration in a manner consistent with the agreement and the forum’s requirements.

Put differently, a party can “win” the waiver-by-litigation fight but still “lose” under § 3 if it does not move the arbitration forward as required by the agreement and applicable arbitration rules.

Nonpayment that Causes the Administrator to Close the File is Compelling Evidence of Default

The panel relied heavily on practical reality: the AAA closed the case because Papa Texas didn’t pay—despite repeated warnings.

The employer tried to blunt that with alternative glosses (including arguments drawn from other circuits’ approaches and attempts to import broader “totality of the circumstances” standards). But the court viewed the facts as straightforward:

1. The arbitration forum demanded payment;
2. The payment obligation was clearly communicated;
3. The AAA granted extensions;
4. Nonpayment persisted; and
5. The forum closed the case.

That sequence supported the district court’s conclusion that the party seeking arbitration had defaulted in proceeding with arbitration.

Ability to Pay can Matter—But You Must Prove it

 A notable aspect of the Tenth Circuit’s analysis is what it emphasized as missing: evidence that Papa Texas could not afford the fees or tried to make alternative arrangements.

That matters for two reasons.

First, courts are understandably reluctant to let a party weaponize arbitration costs—especially when the party invoked arbitration to stop litigation—and then refuse to pay, leaving the opposing party with nowhere to go. That’s the kind of “heads, I win, tails you lose” tactic that waiver or default doctrine abhors. Cf. Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 391 (7th Cir. 1995) (party opposing waiver “wanted to play heads I win, tails you lose”).

Second, a genuine inability to pay, documented contemporaneously, could change the equities and sometimes the analysis. But the Tenth Circuit found no record support for that kind of inability here.

The Court Resisted “Arbitration-Specific” Procedural Requirements Without Weakening § 3’s Default Clause

Papa Texas attempted to draw energy from the Supreme Court’s insistence that courts not craft arbitration-specific procedural rules. The panel did not disagree with that principle. Instead, it treated § 3’s default clause as plain statutory text: if you’re the one who asked for the stay, you must not be in default while arbitration is pending.

That framing is doctrinally important. It positions § 3 default as a text-based limit on the stay remedy—not a court-made, arbitration-hostile overlay.

Seen through that lens, Section 3 is not a special judge-made  procedural rule favoring arbitration agreements over other contracts. If anything, it is an FAA procedural rule that neither favors nor disfavors arbitration and simply prescribes the circumstances under which a stay is either unavailable in the first place or subject to early termination.

The Default Argument was not Waived

Papa Texas also tried a different tack: even if nonpayment could support § 3 default, Myers supposedly waived the default argument by not emphasizing it when Papa Texas first sought the stay. According to Papa Texas, Myers waived the default argument by intentionally opting not to make at the first available opportunity.

The Tenth Circuit affirmed the district court’s rejection of that contention, finding that the district court did not abuse its discretion. The Court said that the district court “was well within its discretion to conclude that nothing about Myer’s counsel’s explanation [for having earlier argued waiver rather than default], or Myer’s behavior before raising the default argument[]” evidenced an intentional relinquishment of the default argument. Slip op. at 18.

Practice Considerations for Arbitration Proponents and Arbitration Opponents

Arbitration Proponents

If you prefer to arbitrate, budget for it and document any inability to pay.

1. Assume the court will expect the party who demanded arbitration to pay its share of arbitration fees promptly.
2. If you cannot, create a record: declare the inability, propose structured payment, request fee relief if the rules permit it, and document pertinent communications.
3. Do not let the administrator close the case and then argue later that you still want arbitration.

Arbitration Opponents

If the other side doesn’t pay, move fast. If your opponent is stalling arbitration by nonpayment:

1. Request administrator enforcement (warnings, deadlines, and closure).
2. Return to court and seek an order lifting the stay under FAA § 3 once default is clear.
3. Preserve the record: notices, invoices, extensions, closure and other communications.

Conclusion

Myers is a clean, practitioner-facing reminder that arbitration is not self-executing. The FAA favors arbitration, but it does not require courts to keep cases on pause while the party who demanded arbitration refuses to do what the arbitration agreement requires.

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, or arbitration-related litigation, then please contact Philip J. Loree Jr., at (516) 941-6094. PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and associated litigation. A former BigLaw partner, he has 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance- or reinsurance-related, and other, matters.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

The post When Arbitration-Fee Nonpayment Derails the Process: Tenth Circuit says the Default Lifts the Section 3 Stay, Allowing Litigation to Proceed | Myers v. Papa Texas, LLC, ___ F.4th ___, No. 25-2020, slip op. (10th Cir. Feb. 12, 2026) appeared first on The Arbitration Law Forum.

At issue in VIP Mortgage, Inc. v. Gates, ___ F.4th ___, No. 24-7624, slip op. at 1 (9th Cir. Dec. 22, 2025), was the Ninth Circuit’s so-called “legally dispositive facts” doctrine—which recognizes a rare exception to the rule that courts may not vacate awards for even egregious mistakes of fact. We have discussed in numerous other posts how the Federal Arbitration Act (“FAA”) generally does not permit courts to review arbitration awards for factual or legal error and permits vacatur only on exceedingly narrow grounds, including “manifest disregard of the agreement,” and in some jurisdictions, “manifest disregard of the law.” (See, e.g., here, here, here, here, here, here, here, here, here, here; here, & here.)

Under the Ninth Circuit’s “legally dispositive facts” doctrine courts will vacate an award if the challenger shows: (1) the factual error was dispositive to the legal issue and (2) the arbitrator knew about the undisputed fact when deciding the issue. VIP Mortgage, slip op. at 9. The VIP Mortgage award challenger satisfied the first prong: the parties had previously stipulated to bear their own legal fees and the award of fees to the award defending party directly contravened the stipulation. If that’s all that mattered then the award challenger would have had a strong argument for vacatur under the U.S. Supreme Court’s decision in Stolt-Nielsen S.A. v. AnimalFeeds Int’l Corp., 559 U.S. 662, 668–69, 684 (2010).

But the award challenger failed the second prong, making the case a clear candidate for confirmation. Neither the award challenger nor the award defender brought the stipulation to the arbitrator’s attention. The arbitrator, without the benefit of the stipulation,  interpreted what she believed the contract said. She did her job, the parties’ pre-award argument did not rely on (or, as far we can tell, even mention) the stipulation, and the award accordingly could not be vacated.

Let’s take a closer look.…

Background and Procedural History

Jennifer Gates (the “award defender”) worked as a loan officer for VIP Mortgage, the award challenger. After leaving the company, she brought wage claims in arbitration. VIP Mortgage asserted counterclaims, which were later settled by a stipulation that each side would bear its own attorneys’ fees and costs associated with the counterclaims. The arbitrator ultimately issued a final award in Gates’s favor, including overtime damages and attorneys’ fees. VIP petitioned the United States District Court for the District of Arizona to vacate the award, but the district court denied vacatur and confirmed the award. The award challenger appealed.  VIP Mortgage, slip op. at 6–7.

VIP Mortgage: Principal Issue and Conclusion

Before the Court was whether the district court should have vacated the award under the “legally dispositive facts” doctrine under the circumstances of this case even though the parties did not argue the stipulation was relevant to the attorneys’ fees issue. The Court said the answer was “no,” the district court properly confirmed the award. VIP Mortgage, slip op. at 7–11.

VIP Mortgage Court’s Reasoning

The Ninth Circuit explained that the “legally dispositive fact” doctrine is a very narrow exception to the rule that an arbitrator’s factfinding is beyond judicial review. To vacate on this ground, the challenger must show (1) an outcome-determinative factual error and (2) that the fact was “so obvious and undisputed that the arbitrator must have known about it when she decided the legal issue.” The factual error must also have been “so critical, obvious, and intentional that it amounted to manifestly disregarding the law.” VIP Mortgage, slip op. at 9–10.

There was no question that the alleged error—failing to give effect to the fee stipulation—was legally dispositive. Had the stipulation been applied to the later fee motion, the arbitrator “would have ruled for VIP on this question.” VIP Mortgage, slip op. at 10.

But VIP could not satisfy prong two: the record did not establish that the arbitrator knew about (and then ignored) the stipulation when she decided the later fee motion. The opinion instead reads like a “preservation-of-the record” case—more than a year had passed, and neither party reminded the arbitrator of the stipulation in the fee briefing or argument. VIP Mortgage, slip op. at 10–11.

Discussion

In the author’s view, the case was correctly decided on the record the parties made. It also functions as a cautionary tale: if a stipulation or other contract term is truly outcome-determinative, it should be argued as such at the moment it matters, or the “dispositive facts” doctrine—or any other iteration of manifest disregard of the agreement or manifest disregard of the law—will likely remain out of reach.

The Ninth Circuit describes the “legally dispositive fact” theory as analogous to “manifest disregard of law.” VIP Mortgage, slip op. at 9–10. In this case, it is also fair to describe the doctrine as a form of “manifest disregard of the contract” (or “manifest disregard of the agreement”)—because the stipulation was part of the parties’ arbitration contract and, if applied, would have foreclosed the fee award on the counterclaims.

This case is reminiscent of Stolt-Nielsen. There, the Supreme Court vacated an award after the arbitral panel imposed class arbitration despite the parties’ stipulation that they had reached “no agreement” on that issue. Stolt-Nielsen, 559 U.S. at 668–69. The Court stressed that “a party may not be compelled under the FAA to submit to class arbitration unless there is a contractual basis for concluding that the party agreed to do so,” and it found no “conceivable” contractual basis where the parties stipulated that they had reached no agreement on the issue. Id. at 684.

VIP Mortgage presents as a Stolt-Nielsen-type problem with a twist: in Stolt-Nielsen the stipulation was dispositive of the merits, and the arbitrators’ disregard of the stipulation turned out to be dispositive of the challenging party’s motion to vacate. The arbitrators were informed of the parties’ stipulation but proceeded anyway. See id. at 668–69, 684.

Had VIP squarely argued the stipulation and its dispositive effect to the arbitrator, the outcome likely would have been different. But neither party did so, and that omission proved dispositive on vacatur. VIP Mortgage, slip op. at 10–11.

Note: The Ninth Circuit also issued an unpublished, nonprecedential opinion in VIP Mortgage, which addressed other issues. See here.

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, or arbitration-related litigation, then please contact Philip J. Loree Jr., at (516) 941-6094 or PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration, and trial and appellate court arbitration-related litigation. A former BigLaw partner, he has 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance- or reinsurance-related, and other, matters.

This blog features links to several arbitration-related videos and webinars in which Mr. Loree appears.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

The post VIP Mortgage v. Gates: The Ninth Circuit’s “Legally Dispositive Fact” Doctrine—and a Stolt-Nielsen Parallel appeared first on The Arbitration Law Forum.

In Silva v. Schmidt Baking Distribution, LLC, No. 24-2103-cv, slip op. (2d Cir. Dec. 22, 2025), the U.S. Court of Appeals for the Second Circuit held that distribution agreements signed by single-worker corporate entities—entities the company required delivery drivers to form as a condition of keeping their routes—were “contracts of employment” within FAA § 1, so the FAA could not be used to compel arbitration. See Silva, slip op. at 2, 18–20.

The “transportation worker” exemption continues to generate litigation and businesses have been experimenting with contract structures designed to avoid it. Silva sends a clear signal: courts will favor substance over form when an employer or contractor requires an individual transportation worker to create an entity to act as a contracting party.

Background and Procedural Posture: Silva and FAA § 1

In Silva two Connecticut-based commercial drivers delivered a Maryland-based bakery’s baked goods in Connecticut. They initially worked as W-2 employees of a staffing agency, but after several months the baked-goods distributor required them—as a condition of continued work—to form corporations and sign “Distribution Agreements” as corporate presidents. Each driver, with the assistance of the bakery, formed a corporation for that purpose. They were prohibited from signing the Distribution Agreements in their individual capacity and were required to and did sign in their corporate capacity. The Agreements contained arbitration agreements and class-wide-proceeding waivers.

The drivers asserted that the daily work they did remained the same despite the change. They contended that work “involved driving a commercial truck to [the bakery’s] warehouse to pick up fresh baked goods, delivering the products to retail outlets within their assigned territories, unloading the goods, and stocking them on retail shelves.” Silva, slip op. at 5. The drivers contended “that they ha[d] virtually no role in negotiating any pricing, sales, or promotions with retailers, which are functions carried out by [the bakery].” Silva, slip op. at 5-6.

Disputes arose between each driver and the bakery about whether the bakery violated Connecticut wage and overtime laws.  The drivers filed in Connecticut state court a putative wage-and-hour class action. The company removed to federal court, based on diversity jurisdiction, and moved to compel arbitration and stay the litigation under the FAA. The district court granted the motion and certified an interlocutory appeal under 28 U.S.C. § 1292(b) (ordinarily the Second Circuit would not—prior to the district court rendering a final decision— have jurisdiction to hear an appeal from an order granting a motion to compel arbitration and stay litigation, see 9 U.S.C. §§ 16(b)(2), 16(a)(1) & (3); 28 U.S.C. § 1292(b)).

FAA § 1 Issue Presented

A three-judge panel of the Second Circuit accepted the district court’s § 1292(b) certification “and directed the parties ‘to address whether an individual worker falls within the scope of the [exception] in § 1 of the Federal Arbitration Act even if the contract to perform work is signed on behalf of the worker by an LLC incorporated by the worker and not the worker as an individual.’” Silva, slip op. at 7 (quoting App’x at 627). The Court held that the workers fell squarely into Section 1’s transportation workers exemption.

Reasoning

The Court concluded that “[t]he record on appeal unequivocally demonstrates that [the driver’s corporations] are mere instrumentalities created at [the bakery’s] behest to dress individual ‘contracts of employment’ in the garb of commercial transactions.” Silva, slip op. at 18 (quoting New Prime, 586 U.S. at 116). The Court therefore held the agreements were “contracts of employment” and vacated the order compelling arbitration. Silva, slip op. at 2, 18–20.

The Court’s analysis started with, and leaned heavily on, New Prime, principally for the proposition that “contracts of employment” within the meaning of Section 1 are not limited to ordinary employment agreements—which establish an employer-employee relationship—but also include agreements “for the performance of work by workers.” New Prime, 586 U.S. at 116 (emphasis in original).

The Court explained that “New Prime’s holding that ‘contract of employment’ was not, in 1925, ‘a term of art bearing some specialized meaning,’” but instead a capacious phrase “referring to ‘nothing more than an agreement to perform work leaves little room to exclude a contract from the § 1 exception solely because it is between businesses.’” Silva, slip op. at 12 (quoting New Prime, 586 U.S. at 114). The Court reinforced this reading by pointing to contemporaneous decisions using the term “‘contracts of employment’ to describe work agreements among corporations, partnerships, and labor unions.” Silva, slip op. at 12.

The statute’s text, the Court added, confirms the point: Congress used “the phrase ‘contracts of employment of workers,’ not ‘contracts of employment with workers.’” Silva, slip op. at 13 (emphasis in original). If Congress had “intended to omit contracts between business entities from § 1, it could have said so.” Id.

The bakery nevertheless invoked the U.S. Supreme Court’s admonition in Circuit City that the § 1 exemption should be narrowly construed. Silva, slip op. at 13 (quoting Circuit City, Inc. v. Adams, 532 U.S. 105, 118 (2001)). The Second Circuit explained that Circuit City announced the “narrow construction” principle while rejecting an effort to read “engaged in commerce” so broadly that the transportation workers exception would, contrary to its text, be construed to encompass all workers engaged in interstate commerce, not simply transportation workers. The concern that prompted Circuit City to construe Section 1 narrowly thus had no bearing  on whether the transportation exemption applies when the worker contracts in an individual versus a corporate capacity. See Silva, slip op. at 13-15 (citing Oliveira v. New Prime, Inc., 857 F.3d 7, 22-23 (1st Cir. 2017), aff’d, 586 U.S. 105 (2019)).

The Court likewise rejected the bakery’s attempt to analogize the Distribution Agreements to ordinary supplier-distributor or franchise arrangements, noting that § 1’s text contains no such carveout. Silva, slip op. at 15–16. Citing and quoting Adler v. Gruma Corp., 135 F.4th 55, 69 (3d Cir. 2025), the Court observed that even a franchise agreement may qualify as a “contract of employment” where “the agreement itself ‘and undisputed facts show[ed] Plaintiffs contracted with Defendant to “perform work” by distributing Defendant’s food products.’” Silva, slip op. at 15-16 (quoting Adler,135 F.4th at 69).

Methodologically, the Second Circuit described its approach as a preference for substance over form, drawing an analogy to corporate veil-piercing doctrine—while emphasizing it was not suggesting the drivers’ corporate forms were shams or alter egos. Silva, slip op. at 16 & n.7.

The Court treated “worker-focused” substance as its guidepost, not the form of the agreement, which merely changed contractual relationship from one between the driver and the bakery into one between the bakery and a corporate entity for whom the driver was the sole agent and under which the driver performed the same work as before.  The drivers’ “roles remained unchanged” despite the new corporate, contractual wrapper over the parties’ relationship. Silva, slip op. at 5-6, 18.

The facts showed that each driver performed transportation work on an individualized basis as independent contractors, albeit through what were essentially shell companies.

The drivers were also effectively denied the one benefit they might have obtained by incorporating. The Court pointed to a “personal guarantee” provision requiring the individual driver to guarantee the corporation’s obligations, stating that it was evidence that Schmidt was contracting for the driver’s labor, not for that of a freestanding business corporation. Silva, slip op. at 17.

“This” indemnity “provision [was] not limited to financial liabilities[,]” said the Court, but “extend[ed] to the performance of the work itself. . . .” It therefore “blurs the line between a supposedly business-to-business contract and an agreement for personal services.” Silva, slip op. at 17. It was, the Court concluded, “[s]ome of the most telling evidence that these [Distribution Agreements] are employment contracts. . . .” Silva, slip op. at 17.

A Limiting Principle: A Business-to-Business Contract for Transportation Services May Fall Outside the FAA § 1  Transportation Workers Exemption

The Second Circuit stressed a limiting principle: “not all business-to-business contracts involving transportation work fall within the exception.” Silva, slip op. at 18. “Contracts for transportation work between sizeable business entities with many employees” may fall outside FAA § 1, even if transportation work is involved. Id.

Distinguishing  Fli-Lo and Amos: Size and Separateness versus “Hobson’s Choice”

The Second Circuit sought to align its holding with outcomes in other circuits (including the Ninth Circuit) that have refused to extend FAA § 1 to agreements between larger, corporate transportation service providers that employ many workers and run multiple routes. See Fli-Lo Falcon, LLC v. Amazon.com, Inc., 97 F.4th 1190 (9th Cir. 2024); Amos v. Amazon Logistics, Inc., 74 F.4th 591 (4th Cir. 2023). The agreements in those cases, the Second Circuit explained, were not “contract[s] of employment” within the meaning of the transportation workers exemption. Silva, slip op. at 19-20.

The Second Circuit explained that in Fli-Lo, plaintiffs were corporations with “‘tens or hundreds of employees’ and managed multiple delivery routes for Amazon.” Silva, slip op. at 18-19. The Ninth Circuit held that commercial contracts like that are not contracts of employment of transportation workers. Silva, slip op. at 19 (citing quoting Fli-Lo Falcon, 97 F.4th at 1196).

Likewise, explained the Court, in Amos, the plaintiff corporation ultimately employed roughly 450 drivers. The Fourth Circuit refused to treat that “sizeable corporate entit[y] as similar in nature to the actual human workers enumerated by the text of the transportation worker exemption . . . .” Silva, slip op. at 19 (citations and quotations omitted).

Here, by contrast, the drivers were individual workers who did not “form sizeable logistics companies that employ[ed] significant workforces[; t]hey [were] individual transportation workers who were required to incorporate to perform the same transportation services they had been performing as individuals.” Silva, slip op. at 20 (footnote omitted). The drivers faced “a Hobson’s choice”: either incorporate in the manner prescribed by the bakery or “los[e] their jobs.” Silva, slip op. at 20. “This distinction[,]” said the Court, “is dispositive and aligns our holding with the precedent from our sister circuits.” Silva, slip op. at 20.

A Broader Anti-Circumvention Principle

The Court explained that it would not “allow employers to circumvent Congress’s exception … by requiring those workers to take the corporate form.” Silva, slip op. at 20. That is the opinion’s real bite: it can be deployed against other “reclassification” strategies that are aimed at routing transportation-worker disputes into FAA arbitration despite Section 1 text to the contrary. See Silva, slip op. at 16-17, 20.

Some Silva FAA § 1 Takeaways

Here are some general observations for all parties and counsel:

1. FAA § 1 analysis can be fact-intensive and structure-sensitive.
2. Not all business-to-business transportation contracts fall within § 1; the “size and separateness” of the contracting entity may matter. See Silva, slip op. at 18.
3. Courts may treat single-worker entities as non-dispositive where the entity is effectively an employer-required conduit for a human worker’s labor.
4. The Second Circuit has explicitly adopted an “anti-circumvention” stance.

For business entities drafting and structuring transportation service relationships:

1. If the business model genuinely relies on separate business entities to provide transportation services (e.g., multi-employee Delivery Service Providers (“DSPs”), route operators, etc.), discuss with your attorney building a record that shows real separateness and independence: e., through workforce scale, operational control, route management, multiple customers, and capital investment.
2. If you are requiring individual drivers to incorporate as a condition of continuing the same work, expect courts to make the kind of substance over form arguments the Court made in Silva. The Court’s opinion arms plaintiffs with a strong “anti-circumvention” framing.

For plaintiffs and their counsel seeking to invoke FAA § 1:

1. Counsel should consider building the “instrumentality” record early: who required incorporation, who paid for filings, who controlled routes, who set pricing, whether duties changed (or didn’t) after the paper switch.
2. Counsel should anticipate the defense’s “business-to-business contract” argument by showing the entity is single-worker, single-customer, single-route, and was required for the worker to keep the job.

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, or arbitration-related litigation, then please contact Philip J. Loree Jr., at (516) 941-6094 or PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration, and trial court and appellate arbitration-related litigation. A former BigLaw partner, he has 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance- or reinsurance-related, and other, matters.

This blog features links to several arbitration-related videos and webinars in which Mr. Loree appears.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

The post FAA § 1 | Silva v. Schmidt Baking Distribution, LLC: Second Circuit Rejects Bakery’s Creative Bid to Avoid Drivers’ FAA Section 1 Exemption appeared first on The Arbitration Law Forum.

The Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act of 2021 (the “EFAA”) is one of the most significant statutory changes to federal arbitration law in decades. Codified as Chapter 4 of the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 401–402, the EFAA limits the enforceability of pre-dispute arbitration agreements in cases involving sexual assault or sexual harassment.

Narrow in subject matter but broad in consequence, it affects domestic and international arbitration agreements, overrides delegation clauses, alters who decides arbitrability, and raises difficult questions about timing, scope, and case management. Federal courts—including circuit courts of appeals—have already begun to grapple with these issues, and more appellate guidance will likely be forthcoming.

This post provides a high-level overview of (1) what the EFAA says, (2) how it works in practice, and (3) the key issues courts have addressed so far, without extensive case-by-case discussion and analysis.

What the EFAA Says

EFAA Covered Agreements and Covered Disputes

The EFAA applies to two types of contractual provisions:

1. A “Predispute arbitration agreement,” which is an “agreement to arbitrate a dispute that had  not yet arisen when the agreement was made,” 9 U.S.C. § 401(1); and
2. A “Predispute joint-action waiver,” which is an “agreement, whether or not part of a predispute arbitration agreement, that would prohibit, or waive the right of, one of the parties to the agreement to participate in a joint, class, or collective action in a judicial, arbitral, administrative, or other forum, concerning a dispute that has not yet arisen at the time of the making of the agreement[,]” id. § 401(2).

The statute applies only if the dispute qualifies as either a “sexual assault dispute,” which is defined by reference to 18 U.S.C. § 2246 or similar state or tribal law, id. § 401(3); or a “sexual harassment dispute,” which is defined broadly as a dispute “relating to conduct alleged to constitute sexual harassment under applicable Federal, Tribal, or State law,” id. § 401(4).

The definitions of sexual harassment and assault  are intentionally expansive and incorporate the relevant substantive law governing the claim.

EFAA Operative Rule

Section 402(a) is the statute’s principal substantive command:

Notwithstanding any other provision of this title, at the election of the person alleging conduct constituting a sexual assault or sexual harassment dispute, no predispute arbitration agreement or predispute joint-action waiver shall be valid or enforceable with respect to a case filed under Federal, Tribal, or State law and relating to such dispute.

9 U.S.C. § 402(a).

Several aspects of this are critical. First, the statute applies “notwithstanding” the FAA’s usual enforcement provisions. Consistent with the text, Chapter 4 is a clear congressional override of FAA Chapter 1. 9 U.S.C. § 2 (Section 2’s enforceability  applies “save. . .  as otherwise provided in chapter 4”); see, Pub. L. No. 117-90, 136 Stat. 26 (2022) (codified at 9 U.S.C. §§ 401–402); see, e.g., Olivieri v. Stifel, Nicolaus & Co., 112 F.4th 74, 84-85 (2d Cir. 2024) (EFAA is a “contrary congressional command” overriding FAA Chapter 1).

 Second, enforceability turns on the claimant’s election. The statute does not automatically invalidate arbitration agreements; it gives the person alleging sexual assault or sexual harassment the option of proceeding in a judicial forum or, if it so chooses, submitting the dispute to arbitration.

This empowers the person alleging such assault or harassment to make that election after the dispute arises, thereby requiring arbitration only if the plaintiff consents to it and then only after the dispute has already arisen.

Third, the statute refers to enforceability “with respect to a case,” not merely a claim or dispute—language that has become central, because it may render unenforceable a predispute agreement to arbitrate otherwise arbitrable disputes or claims that are part of or relate to “a case filed under Federal, Tribal, or State law. . . .” The only other requirement apparent from the statute’s text is that the “case” “relate[s] to” the “sexual assault or sexual harassment dispute. . . .” 9 U.S.C. § 402(a).

Fourth, the EFAA trumps not only Section 2’s enforceability command but also Chapters 2 and 3 of the FAA, which implement the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (the “New York Convention”) and the Inter-American Convention on International Commercial Arbitration (the “Panama Convention”). Section 208 of the FAA, concerning the New York Convention, states (as amended by the EFAA) that “[t]his chapter [2] applies to the extent that this chapter is not in conflict with chapter 4.” 9 U.S.C. § 208. Section 307 of the FAA, concerning the Panama Convention, likewise states that Chapter 3 “applies to the extent that” it “is not in conflict with chapter 4.” 9 U.S.C. § 307.

Courts Decide Applicability, even if the Agreement Contains a Delegation Provision

Section 402(b) provides that a court—not an arbitrator—must decide whether the EFAA applies, “irrespective of whether the agreement purports to delegate such determinations to an arbitrator.” 9 U.S.C. § 402(b); see also Rent-A-Center, West, Inc. v. Jackson, 561 U.S. 63, 68–69 (2010) (discussing, pre-EFAA, delegation clauses and who gets to decide arbitrability).

This provision overrides delegation clauses that would otherwise be enforceable under FAA precedent and ensures judicial control over threshold EFAA questions. Delegation clauses are discussed here, here, and elsewhere in the Arbitration Law Forum.

EFAA Temporal Scope

The EFAA applies only to disputes or claims that “arise or accrue” on or after March 3, 2022, the statute’s effective date. Pub. L. No. 117-90 § 3. That deceptively simple language has generated much of the appellate litigation to date. Disputes over the statute’s effective date are likely to decrease over time, because as time continues to elapse, the less likely it is that conduct concerning the “arising” or “accruing” of a claim or dispute will arguably have occurred exclusively on or prior to March 3, 2022.

How the EFAA Works in Practice

When a defendant moves to compel arbitration in a case involving alleged sexual assault or sexual harassment, and the plaintiff invokes Chapter 4, courts typically proceed in the following order:

1. Does the plaintiff plausibly allege a covered dispute?
2. Did the dispute or claim arise or accrue on or after March 3, 2022?
3. Has the plaintiff elected to proceed in court?
4. If so, what is the scope of unenforceability—only covered claims (sexual assault and sexual harassment) or all otherwise arbitrable claims properly joined to the lawsuit?

The answers to these questions determine whether arbitration of any disputes can be compelled without the post-dispute consent of the plaintiff.

EFAA Timing Issues: “Arises” and “Accrues”

Claim Accrual

The Second Circuit has held that “accrual” under the EFAA carries its traditional meaning from statute-of-limitations doctrine. In hostile-work-environment cases, claims may re-accrue with each wrongful act (sexual assault or harassment), meaning that, if at least one discriminatory act occurs on or after March 3, 2022, Chapter 4 applies, even if wrongful acts also occurred prior to March 3, 2022. See Olivieri, 112 F.4th at 88-91 (hostile-work-environment claims re-accrue with each discriminatory act).

This generous interpretation allows plaintiffs to invoke the EFAA based on continuing violations and avoids retroactivity concerns by tying coverage to post-enactment accrual.

When a Dispute “Arises”

Other courts have focused on when a “dispute” arises, as distinct from when a claim accrues.

Some courts treat a dispute as arising only when there is a disagreement or controversy between the parties—such as when an employee complains and the employer resists or denies the complaint. See Cornelius v. CVS Pharmacy Inc., 133 F.4th 240, 247–49 (3d Cir. 2025) (dispute arises when employee registers disagreement and employer resists); Memmer v. United Wholesale Mortgage, LLC, 135 F.4th 398, 404–09 (6th Cir. 2025) (dispute denotes a “conflict or controversy”). Others view the filing of an administrative charge or lawsuit as the point at which a dispute arises. See Memmer, 135 F.4th 406-07 (discussing EEOC charge as possible trigger). The result is a fact-specific inquiry, often turning on internal complaint processes, employer responses, and the timing of assertions of rights.

No Automatic Retroactivity

Courts have consistently rejected arguments that the EFAA applies retroactively to disputes that were fully formed before March 3, 2022. Olivieri,  112 F.4th at 90-91; Famuyide v. Chipotle Mexican Grill, Inc., 111 F.4th 895, 902–03 (8th Cir. 2024). The statute’s “arises or accrues” language reflects a deliberate temporal limitation. See Olivieri, 112 F.4th at 88-89; Memmer, 135 F.4th at 404–09 (difference between dispute arising and claim accruing); Cornelius,  133 F.4th at 247–49; Famuyide, 111 F.4th at 902–03. 8th Cir. 2024).

Does One Covered Dispute Bar Arbitration of the Entire Case?

One of the most important unresolved questions under the EFAA is whether the presence of a single covered dispute renders an arbitration agreement unenforceable only as to that dispute or as to the entire lawsuit.

Several courts—most notably in the Southern District of New York—have interpreted § 402(a)’s reference to “a case” to mean the entire judicial proceeding. See Johnson v. Everyrealm, Inc., 657 F. Supp. 3d 535, 548–55 (S.D.N.Y. 2023); Baldwin v. TMPL Lexington LLC, 23 Civ. 9899 (PAE), slip op. at 14-18 (S.D.N.Y. Aug. 19, 2024) (citing cases); Mera v. SA Hospitality Grp., 23 Civ. 3492 (PGG) (SDA), slip op. at 10-20 (S.D. N.Y. Nov 14, 2025). Under this view, once a plaintiff plausibly alleges a covered sexual harassment or assault dispute and elects to proceed in court, the arbitration agreement is unenforceable as to all properly joined claims.

Courts adopting this approach emphasize:

• Congress’s use of the word “case,” not “claim”;
• The EFAA’s “notwithstanding” clause; and
• The statute’s purpose of allowing victims to litigate in court rather than being forced into fragmented proceedings.

See, e.g., Everyrealm, Inc., 657 F. Supp. 3d at 548–55; Baldwin, slip op. at 14-18; Mera, slip op. at 10-20.

Under this approach, where the EFAA is “invoked and applies, a pre-dispute arbitration agreement is invalid and unenforceable as to the plaintiff’s entire case, and not just to plaintiff’s sexual harassment claims.” Mera, slip op. at 20; see Everyrealm, 657 F. Supp. 3d at 552–55.

Appellate Review Is Pending

The scope question is, we understand, now before the Second Circuit in at least two appeals apparently involving:

• Whether retaliation claims “relate to” sexual harassment disputes;
• Whether sex-based harassment without overtly sexual conduct qualifies as “sexual harassment”; and
• Whether arbitration agreements are unenforceable as to entire cases or only subsets of claims.

The two Second Circuit appeals to watch are:

• Diaz-Roa v. Hermes Law, P.C., No. 24-3223 (2d Cir.) (appeal from Diaz-Roa v. Hermes Law, P.C., 757 F. Supp. 3d 498, 530-42 (S.D.N.Y. 2024)); and
• Puris v. TikTok Inc., No. 25-322 (2d Cir.) (appeal from Puris v. TikTok Inc., No. 24-cv-944, 2025 WL 343905 (S.D.N.Y. Jan. 30, 2025)).

The Second Circuit heard oral argument in Diaz-Roa on October 16, 2025, but has not rendered a decision as of the date of this writing. Oral argument in Puris is scheduled for January 23, 2026.

Decisions in these cases may shape EFAA litigation for years to come.

What the EFAA Does Not Do

It is equally important to understand the statute’s limits.

• The EFAA does not ban arbitration of all employment disputes.
• It does not automatically invalidate arbitration agreements absent a claimant’s election.
• It does not eliminate (but in a given case could moot) traditional contract formation, validity, and enforceability issues, which continue to be governed by state law governing contracts in general.

Practical Takeaways

For practitioners, several points are noteworthy:

• Timing is critical. The difference between pre- and post-March 3, 2022, conduct can be dispositive.
• Continuing violations matter. Hostile work environment allegations often bring disputes within the statute’s reach.
• Courts decide EFAA applicability—delegation clauses do not control.
• Scope remains unsettled. Whether one covered dispute keeps an entire case in court is among the most consequential open questions.
• Appellate guidance on scope from the Second Circuit appears to be imminent.

Conclusion

The EFAA represents a focused yet very consequential modification of the FAA. By granting claimants alleging sexual assault or sexual harassment the right to avoid pre-dispute arbitration, Congress altered long-standing assumptions about enforceability, arbitrability, and forum selection.

Although many interpretive questions remain, the statute has already reshaped arbitration practice meaningfully. As appellate courts continue to address timing, scope, and definitional issues, staying current on EFAA developments is essential for anyone litigating or drafting arbitration agreements governed by the FAA.

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, or arbitration-related litigation, then please contact Philip J. Loree Jr., at (516) 941-6094 or PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration, and trial court and appellate arbitration-related litigation. A former BigLaw partner, he has 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance- or reinsurance-related, and other, matters.

This blog features links to several arbitration-related videos and webinars in which Mr. Loree appears.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

The post The EFAA—Ending Forced Arbitration of Sexual Assault and Sexual Harassment Act: A Practical Overview appeared first on The Arbitration Law Forum.

The panel included Professor Angela Downes, University of North Texas-Dallas College of Law(“UNTD”) Professor of Practice, UNTD Assistant Director of Experiential Education, and JAMS Neutral (arbitrator and mediator);  Richard D. Faulkner, veteran arbitration and appellate practitioner, arbitrator, mediator, former trial judge, prosecutor, and law professor; and the author, Philip J. Loree Jr., principal of The Loree Law Firm; founder, author,  and editor of the Arbitration Law Forum; and former BigLaw partner, who focuses his practice on arbitration and appellate and trial-court arbitration litigation.

You can review the video of the presentation here. This was the 17th arbitration-related, CPR-sponsored video presentation in which Mr. Loree and other members of the panel have participated. Russ is to be thanked profusely not only for hosting and moderating the program, but also  posting links and citation references to blog posts, articles and cases relevant to the matters discussed.

While the discussion canvassed a wide range of cases, the panel placed particular emphasis on two matters in which the United States Supreme Court (“SCOTUS”) has granted certiorari: Jules v. Andre Balazs Properties, No. 25-83 (U.S.) and Flowers Foods, Inc. v. Brock, No. 24-935 (U.S.).  Together, those cases underscore the Court’s renewed engagement with arbitration-related procedural and jurisdictional questions under the Federal Arbitration Act (the “FAA”).

This post summarizes the panel’s discussion of these important appellate arbitration developments, focusing primarily on Jules and Flowers and the issues they present. It then turns to other appellate decisions that have recently shaped the arbitration-law landscape.

Appellate Arbitration Developments: Supreme Court Certiorari as the Organizing Principle

A central premise of the CPR program was that Supreme Court certiorari activity is itself a critically important signal indicating the direction in which arbitration law is trending at the appellate level. . Even where arbitration doctrine appears settled, the Court’s willingness to take certain cases—and its refusal to take others—often reveals where doctrinal fault lines have emerged or are emerging.

In this respect, Jules and Flowers Foods are especially significant. Both cases present issues that go to the scope and operation of the FAA, but neither involves a frontal assault on arbitration enforceability. To be sure, their outcomes will in Flowers determine whether, under the facts, Section 1 of the FAA exempts from the FAA certain end-point workers who transport goods without crossing borders, and in Jules, whether an FAA-governed arbitration award must be confirmed in a state, rather than federal, forum. Instead, they raise jurisdictional questions that can determine whether arbitration-related disputes are heard in federal court at all (Jules) or in any court under the FAA (Flowers).

Key Appellate Arbitration-Law  Development I: Jules v. Andre Balazs Properties—Continuing or Anchor Subject Matter Jurisdiction Following a Section 3 Stay and a Section 4 Motion to Compel

In Jules, the Supreme Court granted certiorari to address whether a federal court that stays an action pending arbitration under FAA § 3, and compels arbitration under Section 4, retains subject-matter jurisdiction to adjudicate  post-arbitration applications to confirm or vacate the award under FAA §§ 9 or 10.

Although narrow in formulation, the question is complex and has sweeping practical consequences, particularly in light of the Court’s 2022 decision in Badgerow v. Walters, 596 U.S. 1 (2022), which sharply limited federal courts’ ability to exercise so-called “look-through” jurisdiction over post-arbitration proceedings.

As the panel emphasized, Jules sits at the intersection of two doctrinal developments in appellate arbitration law:

1. Mandatory stays under FAA § 3, increasingly reinforced by Supreme Court precedent, which apply only when a party requests the stay and a court finds referable to arbitration a claim that is the subject or part of a pending federal-court lawsuit on the merits; and
2. Following Badgerow, restricted federal jurisdiction over pre- or post-award arbitration enforcement proceedings, at least where those proceedings are standalone, independent proceedings that do not arise out of a preexisting but stayed federal-court lawsuit.

If a federal court in a lawsuit on the merits of a dispute compels arbitration, and if a party requests a stay of the federal lawsuit pending arbitration, then under Smith v. Spizzirri, 144 S. Ct. 1173 (2024), the federal court must grant the stay. But if the same court lacks jurisdiction to confirm or vacate the resulting award, the practical utility of the initially selected and stayed  federal forum is substantially diminished, and serious questions arise about whether Congress intended the FAA to permit such a result.

This is especially so since finding jurisdiction based on the preexisting jurisdiction of the federal lawsuit does not implicate any concerns about “looking through” to the underlying arbitration proceeding. As long as jurisdiction is based on the jurisdiction of the Court in the underlying lawsuit, then there is no “look through”—it’s really just “look at”—if there was subject matter jurisdiction over the stayed lawsuit, then there should presumably be subject matter jurisdiction over a motion made in that stayed lawsuit for relief under the FAA relating to the subject matter of that stayed lawsuit. See Badgerow, 596 U.S. at 15 (“Jurisdiction to decide the case includes jurisdiction to decide the motion; there is no need to “look through” the motion in search of a jurisdictional basis outside the court.”) The tension associated with all of this is what Jules brings to the fore.

CPR’s discussion of the case highlights how lower courts have divided on this issue and why the Supreme Court guidance is required. (See CPR’s analysis of Jules here.)

SmartSky Networks v. DAG Wireless: Context for the Jules Question

Against that backdrop, the panel discussed SmartSky Networks LLC v. DAG Wireless Ltd., 70 F.4th 615 (4th Cir. 2023),  a Fourth Circuit decision addressing whether a federal court that compelled arbitration, and stayed proceedings pending arbitration, retained jurisdiction to confirm or vacate the resulting award. The U.S. Court of Appeals for the Second Circuit ruled in Jules that the district court, which had federal question jurisdiction over a lawsuit on the merits, had continuing subject matter or anchor jurisdiction over post-award enforcement proceedings because it had granted a Section 3 stay and a Section 4 motion to compel arbitration. In SmartSky, however, the U.S. Court of Appeals for the Fourth Circuit reached the diametrically opposite conclusion in a case involving essentially the same material facts as Jules.

Importantly, as the panel made clear, SmartSky was not discussed as an end in itself. Rather, it served as a concrete illustration of the jurisdictional problem now before the U.S. Supreme Court in Jules. The resolution of Jules will most likely determine whether SmartSky is a good law, a very important question to appellate and trial-court arbitration law practitioners.

SmartSky, unlike Jules, concluded that the district court lacked jurisdiction over post-arbitration proceedings, notwithstanding the Section 3 stay. That approach reflects a strict reading of Badgerow and highlights the risk that federal courts may become jurisdictionally stranded after compelling arbitration. That would leave a significant amount of additional FAA litigation to the state courts, who would be expected to apply the FAA to substantive matters but be free to apply state arbitration law to procedural matters.

The panel discussed how courts have taken different approaches, creating uncertainty for practitioners and litigants alike. These divergent outcomes underscore why Supreme Court review is warranted.

As CPR’s year-end materials explain, SmartSky and Jules, taken together, demonstrate the kind of materially different approaches to the same important issue that often prompt a grant of certiorari. (See CPR’s overview here.)

Key Appellate Arbitration-Law  Development II: Flowers Foods, Inc. v. Brock— FAA § 1 and the Scope of the Transportation Worker Exemption

The panel also discussed Flowers Foods, Inc. v. Brock, No. 25-121 (U.S.), the other case in which the Supreme Court has granted certiorari. Flowers Foods concerns the scope of the FAA § 1 exemption for certain “transportation workers” and the criteria courts should apply in determining whether that exemption applies.

The question before the Court is: “[a]re workers who deliver locally goods that travel in interstate commerce—but who do
not transport the goods across borders nor interact with vehicles that cross borders—’transportation workers’ ‘engaged in foreign or interstate commerce’ for purposes of the Federal Arbitration Act’s § 1 exemption?”

Continuing Uncertainty Under FAA § 1

Although the Supreme Court has addressed FAA § 1 in recent years, the panel noted that lower courts continue to struggle with its application, particularly in cases involving workers who perform mixed or indirect transportation-related functions, or where (as here) a bona fide question arises concerning whether the workers are engaged in interstate commerce within the meaning of FAA § 1.

Flowers Foods presents an opportunity for the Court to clarify how broadly—or narrowly—the exemption should be construed, with significant implications for employment arbitration and independent contractor agreements.

The panel emphasized that FAA § 1 litigation has become one of the most active areas of appellate arbitration law, making the Court’s intervention both timely and consequential.

Other Appellate Developments Discussed

With the cert-granted-recently Supreme Court cases as the anchor, the panel surveyed several additional appellate decisions that illustrate broader trends:

1. International arbitration and sovereign immunity, including the U.S. Supreme Court’s decision in CC/Devas (Mauritius) Ltd. v. Antrix Corp. Ltd., 145 S.Ct. 1572 (2025), addressing a Foreign Sovereign Immunities Act of 1976 (“FSIA”), 28 U.S.C. §§ 1330, 1602 et seq., personal jurisdiction issue arising out of an award enforcement matter.
2. FAA preemption of State Law, as reflected in Hohenshelt v. Superior Court, 18 Cal.5th 310 (2025) (finding no preemption of state law concerning prompt payment of arbitrator fees).
3. Consumer arbitration and unconscionability, including Live Nation v. Heckman, 69 F.4th 1257 (9th Cir. 2023).
4. Severability of illegal arbitration agreement provisions and contract enforcement, discussed through Mungo Homes LLC v. Huskins, 379 S.C. 199, 665 S.E.2d 590 (S.C. 2023). (For a discussion of Mungo Homes, see here.)
5. FAA §3 stays and procedural consequences, as discussed in Smith v. Spizzirri, 144 S. Ct. 1173 (2024). (For a discussion of Spizzirri, see here.)
6. Flores v. New York Football Giants, Inc.,104 F.4th 205 (2d Cir. 2024), in which the U.S. Court of Appeals for the Second Circuit refused to enforce an arbitration agreement that required disputes to be arbitrated by an arbitrator who lacked independence from the parties. (For a discussion of Flores, see here.)

Practical Implications for Arbitration Practitioners

The panel’s discussion yielded several practical takeaways, including:

1. Arbitration law disputes increasingly turn on procedural and jurisdictional mechanics rather than on arbitration’s legitimacy as a dispute resolution mechanism.
2. At least until the Supreme Court decides Jules, federal subject matter jurisdiction based on an “anchor” or “continuing jurisdiction” theory cannot be assumed simply because the court has compelled arbitration and stayed litigation pending arbitration.
3. Strategic decisions at the motion-to-compel stage may determine whether other FAA litigation will proceed in state, rather than federal court.
4. Arbitration clause drafting should account for jurisdictional endgames—including vertical (state vs. federal) choice of law—not just enforceability generally.

Looking Ahead to 2026

As the panel concluded, the Supreme Court’s decisions in Jules and Flowers Foods are likely to shape arbitration practice well beyond the this 2025 Term, and the Court’s 2026 Term, which starts later next year. Together, they reflect a Court that is less concerned with whether arbitration is favored, and more concerned with how arbitration fits within the text of the FAA concerning subject matter jurisdiction and exemptions to FAA applicability.

For arbitration practitioners, staying attuned to these developments is critical. Programs like CPR’s year-end “Hot Topics” discussion provide an invaluable forum for understanding not just where arbitration law has been—but where it is heading.

Contacting the Author

If you have any questions about this article, arbitration, arbitration-law, or arbitration-related litigation, then please contact Philip J. Loree Jr., at (516) 941-6094 or PJL1@LoreeLawFirm.com.

Philip J. Loree Jr. is principal of the Loree Law Firm, a New York attorney who focuses his practice on arbitration and trial court and appellate arbitration-related litigation. A former BigLaw partner, he has 35 years of experience representing a wide variety of corporate, other entity, and individual clients in matters arising under the Federal Arbitration Act, as well as in insurance- or reinsurance-related, and other, matters.

This blog features links to several arbitration-related videos and webinars in which Mr. Loree appears.

ATTORNEY ADVERTISING NOTICE: Prior results do not guarantee a similar outcome.

Photo Acknowledgment

The photo featured in this post was licensed from Yay Images and is subject to copyright protection under applicable law.

The post Hot Topics in Appellate Arbitration: Supreme Court Review, Jurisdictional Fault Lines, and a Look Ahead to 2026 appeared first on The Arbitration Law Forum.