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.

As the Supreme Court recognized in Arthur Andersen LLP v. Carlisle, 556 U. S. 624, 631 (2009), and as we discussed in a 2009 post, “traditional principles of state law allow a contract to be enforced by or against nonparties to the contract through assumption, piercing the corporate veil, alter ego, incorporation by reference, third-party beneficiary theories, [and] waiver and estoppel.” 556 U.S. at 631. The First American Title arbitration decision’s nonsignatories argued for enforcement of the arbitration agreement on the ground they were allegedly parties, third-party beneficiaries, or agents. They also sought enforcement under equitable estoppel principles. But the Court rejected all of their  arguments and affirmed the district court’s denial of the motion for an order staying litigation and compelling arbitration.

The First American Title Arbitration Decision: Background

Real estate investors bought interests in Ohio and Florida event-center projects through Purchase and Sale Agreements (“PSAs”) with Rockwell Debt Free Properties, Inc., and affiliates (collectively, “Rockwell”). The PSAs contained arbitration clauses covering “any dispute between the parties[:]”

Arbitration. Any dispute between the parties will be submitted to binding arbitration according to the Commercial Rules of the American Arbitration Association …. Except for actions relating to the payment of money for services rendered, an action under this Agreement must be filed within 90 days of the date of closing pursuant to this Agreement. Arbitration will be conducted in [Florida or Ohio (depending on the contract)], before a single arbitrator…. Judgment upon the award may be entered in any court having jurisdiction.

Slip op. at 4 (emphasis and bracketed text in original).

First American Title Insurance Company (“First American”) was designated as escrow agent in the contracts, and its employee served as an escrow agent, but neither First American nor its employees (collectively, the “FA Defendants”) signed any of the contracts. Slip op. at 4-5. When no event venues were constructed and the projects failed, investors sued First American, alleging various claims, including, among others, breach of fiduciary duty; securities violations; aiding and abetting tortious conduct; and abuse of vulnerable adults. Slip op. at 5-6.

The FA Defendants moved to compel arbitration in September 2021 but one month later the Rockwell bankruptcy trustee expressly waived the arbitration provisions in each PSAs to which at least one of the Rockwell entity Plaintiffs was a party.

In September 2021 the FA Defendants filed a motion to compel arbitration based on the arbitration clauses in the PSAs. A month later, Rockwell’s bankruptcy trustee expressly waived the arbitration provision in each PSA to which at least one of the Plaintiffs was a party.  The waiver was effected by letter agreement between the trustee and Plaintiffs’ attorney, which provided that the arbitration agreements were deleted from the PSAs.

It was unclear whether the district court had been informed of the letter agreement, but in December 2021 the district court denied the motion to compel without prejudice, stating that it would await the Tenth Circuit’s ruling in DiTucci v. First American Title Insurance Co., No. 21-4120, 2023 WL 382923 (10th Cir. Jan. 25, 2023), “a related case involving similar parties and issues in which the FA Defendants appealed the denial of a motion to compel arbitration.” Slip op. at 6.

The Tenth Circuit affirmed the district court’s order in DiTucci, which denied the motion to compel in that related case. In response the FA Defendants renewed their motion to compel arbitration, which a magistrate judge denied. The FA Defendants filed objections to the district court but the district court judge overruled them and adopted the magistrate judge’s order. Slip op. at 6 (citing district court decision, Fucci v. Bowser, No. 2:20-cv-00004-DBB-DAO, 2024 WL 2076855, at *18 (D. Utah May 9, 2024)).

An appeal followed and, in the First American Title arbitration decision, the Tenth Circuit affirmed the district court’s denial of the motion to compel.

First American Title Arbitration Decision: The Court’s Reasoning

In the First American Title arbitration decision the Tenth Circuit rejected every theory advanced by First American.

The FA Defendants were not Parties to the PSAs

First American was not a signatory, nor identified as a party. The Court explained that the PSAs established that Plaintiffs and Rockwell were the only parties to the PSAs—indeed, “[t]he first sentence of each PSA states that the agreement is made ‘by and between’ Rockwell and the buyers, without mention of any other parties.” Slip op. at 9.

The signature block, which identified Rockwell and the purchasers as the only signatories, stated that “‘the parties have set their hands’ to the agreement,” thereby demonstrating that the parties intended that Rockwell and the purchasers, and not any of the FA Defendants, were the parties to the agreement. Slip op. at 9-10 (citations and quotation omitted)

The Court stated that its conclusion aligned with “traditional contract doctrine.” Slip op. at 10. It explained that contracts have promisors and promisees: A “promisor. . .  ‘manifest[s] the intention [to act or refrain from acting in a specified way].’” Slip op. at 10 (citation and quotation omitted). Promisees are those to whom that manifestation of intent is directed. Slip op. at 10 (citation omitted).  Pursuant to the PSAs, Rockwell  “promised to convey real-estate interests to the” purchasers, who, in turn, promised to compensate the sellers for that conveyance. Slip op. at 10. By contrast, the FA Defendants did not, under the PSAs, promise anything to anyone.  Slip op. at 10.

At most the FA Defendants were incidental beneficiaries. While the PSAs designated First American as escrow agent, and accordingly benefited from the PSAs, nobody under the PSAs addressed any promises to the FA Defendants. Slip op. at 10-11. The Court distinguished Florida and Ohio law cases that the FA Defendants cited in support of their argument that the FA Defendants allegedly became parties to the PSAs. Slip op. at 11-12.

Concluding that “[the FA] Defendants submit no evidence of any offer, acceptance, or mutual assent that could bind them to the arbitration clause in the PSAs[,]” the Court held that the FA Defendants “were not parties to any PSA[,]” and could not compel arbitration on the ground they were allegedly PSA parties.  Slip op. at 13. Had “they . . . declined to act as escrow agent in any of the sales transactions, they would  not have breached the PSA.” Slip op. at 13. Any “contractual obligation” the FA Defendants might “have had  in the escrow transaction could have arisen only from their later agreement to act in that [escrow-agent] capacity[,]” the First American Title arbitration decision states. Slip op. at 13. And none of the PSAs evidenced “an agreement by the FA Defendants to arbitrate any disputes they had with the signatories to the PSA.” Slip op. at 13.

First American Title Arbitration Decision: The FA Defendants were not Third-Party Beneficiaries of the PSAs 

The First American Title arbitration decision also rejected the FA Defendants’ argument that they could enforce the PSAs as third-party beneficiaries. While Contracts frequently will confer on a third party a benefit, that alone is insufficient to make that third person an intended beneficiary of the contract, with rights to enforce it. Slip op. at 13. Florida and Ohio law require that the parties “primarily” and “directly”  intended to benefit the third party, making that person an intended beneficiary of the contract. Slip op. at 13, 15. A beneficiary of a promise does not become an intended beneficiary unless “‘recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either (a) the performance of  the promise will satisfy an obligation of the promisee to pay money to the beneficiary; or (b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.’” Slip op. at 13-14 (quoting Restatement (Second) of Contracts § 302(1) at 439-40). Intended beneficiaries have the same enforcement rights as a party to a contract. See slip op. at 13-14 (quoting 13 Williston on Contracts § 37:1 at 21-23 (4th ed. 2024)).

The First American Title arbitration decision concluded there was no evidence that the parties intended the PSAs to benefit the FA Defendants primarily and directly, let alone any intent that the arbitration agreements in those PSAs were directly and primarily intended to benefit those Defendants. Slip op. at 15-17 (citations and quotations omitted). First American was identified as  the escrow agent for the sole purpose of receiving buyer funds “and to describe the procedures the parties must following closing the transaction.” Slip op. at 15. But that was not enough to make the First American Defendants intended beneficiaries.

“The sole purpose of the PSAs[,]” said the Court, “was to consummate Plaintiffs’ purchases of interests interests in real-estate development projects from Rockwell.” Slip op. at 15. The mutual promises made to effect that purpose did not evidence any direct and primary intention to benefit the FA Defendants. See Slip op. at 15-17 (citations and quotations omitted).

The benefit was therefore, and at most, “incidental or indirect.” Slip op. at 15-17 (citations and quotations omitted).

The Court accordingly held that the FA Defendants did not qualify as intended beneficiaries of the contract under either Florida or Ohio law, and therefore could not compel arbitration under the PSAs. Slip op. at 17.

The FA Defendants could not Enforce the PSAs in their Alleged Capacity as Rockwell’s Agent

The Court held that, even if First American had acted as Rockwell’s agent, agency principles did not provide a basis for the FA Defendants to enforce the PSAs. Slip op. at 17-18. This finding principally turned on the Rockwell bankruptcy trustee’s express, written waiver of the PSAs’ arbitration provisions. Id.

In a letter with a “Waiver of Arbitration” subject line, the trustee waived the arbitration agreements “‘on behalf of the Debtor entities, the estate, and all agents, assigns, employees, and representatives thereof.’” Slip op. at 18 (citation omitted). The Court rejected the five arguments the FA Defendants made in support of their agency argument.

First, the First American Title arbitration decision explained that, contrary to the FA Defendants’ assertions, it did not matter that the waiver did not occur until one month after the FA Defendants filed their motion to compel. According to the Court, “the FA Defendants had the right, in their capacity as agents, to demand arbitration of their dispute is to say that they were acting on behalf of their principals in attempting to have the dispute arbitrated.” Slip op. at 19. But if the principal is not permitted to demand or pursue arbitration, then neither can the agent. See slip op. at 19-20 (citations and quotations omitted). And when the principal lost the right to arbitrate, so did the agent. See slip op. at 19-20

Thus, when on October 20, 2021, Rockwell countersigned the letter, it not only relinquished its “power to demand arbitration of disputes under the PSAs, but also terminated any authority that the FA Defendants may have had to enforce the arbitration agreements. Slip op. at 19-21. It also terminated the agent’s authority by revoking it. Slip op. at 20-21 (citations and quotations omitted). FA had notice of the termination and revocation of its authority on the same date the letter was executed. Any authority First American might have had to enforce the arbitration agreement therefore ceased on October 20, 2021. Slip op. at 19-20, 21.

In any case, an agent is not acting on behalf of its principal when it takes action that it knows the principal does not wish it to take—when an action has legal consequences, an agent must have a reasonable belief that the principal, in accordance with its manifestation of consent to the agent, wants the agent to take that action on its behalf. See slip op. at 20 (citations and quotations omitted).

Even if Rockwell’s desire not to arbitrate was not known at the time the FA Defendants moved to compel, “the motion accomplished nothing irreversible.” Slip op. at 21. The Court could “see no reason why the FA Defendants were compelled, or even authorized, to continue to pursue a demand for arbitration as Rockwell’s agents once they were informed that Rockwell had waived the right to arbitrate.” Slip op. at 21.

Second, the Court rejected the argument that the district court imposed on the FA Defendants the burden to prove the absence of waiver, instead of imposing that burden on Plaintiffs the burden to prove waiver. But the Court said the district court did not impose on the FA Defendants the initial burden of persuasion.  Slip op. at 21. The Court explained that the burden shifted when the magistrate judge issued a report and recommendation, and, according to the district court, “the FA Defendants failed ‘to identify the specific reasons why they object’ to the to the magistrate judge’s finding that the bankruptcy trustee waived Rockwell’s arbitration rights.” Slip op. at 21 (citation omitted). In the absence of specific objections, “[t]he district court then assumed what Rockwell might be arguing and rejected those arguments on the merits.” Slip op. at 21.

Third, the FA Defendants argued that the waiver did not comply with the PSA’s provision that modifications be in writing and signed by the parties, but that argument failed because the letter was in writing and was signed on behalf of the Plaintiffs’ by their attorney, and on behalf of Rockwell by the trustee. Slip op. at 21-22. Further, the letter expressly provided that the arbitration clauses were deleted from the PSAs. Slip op. at 21-22.

Fourth, the Court rejected the FA Defendants’ argument that 11 U.S.C. § 363(b)(1) required notice and hearing before the trustee could waive its arbitration rights. Section 363(b)(1) provides that “[t]he trustee, after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate.” 11 U.S.C. § 363(b)(1). The FA Defendants, however, “provid[ed] no authority, nor . . . [was the Court] aware of any[]” suggesting the PSAs’ arbitration rights were, under Section 363(b)(1), “property of the estate.” Slip op. at 22 (quoting  11 U.S.C. § 363(b)(1)).

Fifth, the FA Defendants contended that the right to demand arbitration was a “vested right” of a third-party beneficiary to PSAs, but the Court rejected that argument as foreclosed by the Court’s finding that the FA Defendants were not third-party beneficiaries of the arbitration agreements. Slip op. at 22.

The FA Defendants Could not Enforce the Agreement under Equitable Estoppel Principles

While sometimes nonsignatories can enforce arbitration clauses, the Court ruled that, under Ohio and Florida law, equitable estoppel cannot expand a clause limited to disputes “between the parties”. Both Florida and Ohio, said the Court, recognize “equitable estoppel” in two instances: “(1) when the signatory relies on the contract containing the arbitration clause to assert a claim against the nonsignatory, and (2) when the signatory alleges collusive misconduct by the nonsignatory and a signatory.” Slip op. at 23.

The Court found that both Florida and Ohio law equitable estoppel cannot be used to expand the scope of the arbitration provision. Slip op. at 23-27 (citations and quotations omitted). Here, the arbitration agreement applied “only to ‘[a]ny dispute between the parties.’” Slip op. at 24 (citation omitted; bracketed text and emphasis in original).

The Court found that applying equitable estoppel to require arbitration under the PSAs would expand the limited scope of the arbitration agreement. As the Court earlier ruled, Rockwell and the Plaintiffs were the only parties to the PSAs, and the dispute was thus not within the scope of the arbitration provisions. Slip op. at 24. Even assuming that the FA Defendants could establish one of the two bases for equitable estoppel, the doctrine was inapplicable here because it would expand the scope of the arbitration provisions.

The limited scope of the arbitration agreement controlled the outcome. Court distinguished this case from cases where “the arbitration clause broadly covered any and all disputes arising out of the PSAs.” Slip op. at 26-27 (citations and quotations omitted).

The Court accordingly affirmed the district court’s denial of the renewed motion to compel.

Policy Implications

Fucci is a “first principle” case, for it underscores that arbitration is a matter of consent, not coercion. (See, e.g., a “first principle” blog post we published a while back.) By denying the FA Defendants’ equitable estoppel argument as contrary to the text of the parties’ arbitration agreement, it gives effect to Stolt-Nielsen’s “rule[] of fundamental importance” under which “parties may specify with whom they choose to arbitrate their disputes.”  Stolt-Nielsen, S.A. v. Animalfeeds Int’l Corp., 559 U.S. 662, 681-82, 683-84 (2010) (citations and quotations omitted; emphasis in original). Because the parties clearly expressed their intention to limit the scope of their arbitration agreement to disputes “between the parties,” the Court quite correctly decided that extra-contractual equitable estoppel considerations could not be used to rewrite the arbitration agreement.

For businesses, the case highlights at least two basic lessons:

Drafting Matters

If parties want agents, affiliates, or other third-parties to benefit from arbitration rights, the clause should expressly include them and specify whether those arbitration rights will (or not) survive termination or revocation of the agency relationship. Further, the scope of the clause should be drafted in a way that is broad enough to encompass claims by or against third-parties.

On the other hand if the parties wish to preclude third parties from seeking to enforce the arbitration agreement, or otherwise limit or eliminate the rights of third persons, they should consider whether an appropriate third-party beneficiary disclaimer provision, or other limiting language, should be included in the agreement. Nationwide Mut. Ins. Co. v. Home Ins. Co., 150 F. 3d 545, 549-50 (6th Cir. 1998) (New York law).

Business persons who wish to draft their contracts to include or exclude persons that would otherwise not have the right to enforce the contract, or to determine what nonsignatories might have a right to enforce an existing or proposed contract, should consult with experienced counsel with arbitration-law experience to identify pros and cons and suggest appropriate contract language.

Waiver Risks

Bankruptcy of a party is a risk that frequently arises in litigation and arbitration. As the First American Title arbitration provision illustrates, bankruptcy trustees or other representatives may, in certain circumstances, extinguish arbitration rights, binding even affiliated agents.

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.

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 First American Title Arbitration Decision: Tenth Circuit Says Nonsignatory Escrow Agent Can’t Compel Arbitration appeared first on The Arbitration Law Forum.

Does Section 3 arbitration default result from moving to dismiss the entire case on the merits? The Sixth Circuit says yes.

Since Morgan v. Sundance, 596 U. S. 411 (2022), most of the cases concerning loss of arbitration rights by litigation conduct have focused not on prejudice—Morgan nixed the requirement that arbitration opponents show prejudice to establish forfeiture or waiver, 596 U.S. at 1-2—but on what type and degree of inconsistent-with-arbitration conduct results in a loss of arbitration rights.

But on August 27, 2025, the U.S. Court of Appeals for the Sixth Circuit, took a slightly different tack on Section 3 arbitration default. In Kloosterman v. Metropolitan Hospital, No. 24-1398, slip op. (6th Cir. Aug. 27, 2025), the Court reversed a district court order that had compelled arbitration of a physician assistant (“PA”)’s religious discrimination claims. The Sixth Circuit made two significant rulings bearing on loss of arbitration rights by litigation conduct.

First, the Court held— in an opinion written by Circuit Judge Eric E. Murphy, and joined by Circuit Judges Rachel S. Bloomekatz and Stephanie Dawkins Davis—that the defendants were guilty of Federal Arbitration Act Section 3 arbitration default. By seeking “an immediate and total victory” in court, the hospital disavowed its contractual promise to arbitrate and therefore “default[ed] in proceeding with . . . arbitration” within the meaning of FAA Section 3. Slip op. at 10-11; 9 U.S.C. § 3.  Quoting Circuit Judge Richard A. Posner’s opinion in Cabinetree of Wisconsin, Inc. v. Kraftmaid Cabinetry, Inc., 50 F.3d 388, 391 (7th Cir. 1995), the Court said “parties cannot ‘play heads I win, tails you lose’ by reserving arbitration only if litigation falters.” Slip op. at 10 (quoting 50 F.3d at 391). If they do, they commit Section 3 arbitration default.

Second, it brought into question, through dueling concurring opinions, whether the issue before the court in loss-of-arbitration-rights-by-litigation-conduct cases are governed by the rules and principals of waiver, forfeiture, or both. Judges Murphy and Bloomekatz wrote separate concurrences addressing this aspect of Section 3 arbitration default—one which the Opinion of the Court did not need to—and did not—resolve. Circuit Judge Murphy’s concurrence argued that forfeiture, which is generally governed by federal procedural law, and waiver, which is generally governed by state contract law, provide distinct grounds for losing arbitration rights. The Court’s “waiver” precedents, Judge Murphy explained, apply a federal forfeiture doctrine rooted in FAA § 3’s “default” language. See slip op. at 20 (Murphy, J., concurring).

Circuit Judge Bloomekatz’ concurring opinion agreed with the outcome but cautioned against making rigid distinctions between waiver and forfeiture. She wrote that waiver and forfeiture often overlap, and FAA § 3 speaks simply of “default.” See slip op. at 21-24.

Section 3 Arbitration Default:  Kloosterman Background and Procedural History

Valerie Kloosterman, a physician assistant (“PA”) at Metropolitan Hospital (later University of Michigan Health-West) (the “Hospital’), had worked for nearly twenty years with exemplary performance reviews. In 2021, the hospital required staff to undergo training on serving LGBTQ+ patients. Kloosterman’s Christian beliefs prevented her from affirming statements about gender identity, using pronouns inconsistent with biological sex, or referring patients for gender-transition procedures. She sought a religious accommodation to use patients’ names in lieu of pronouns. During accommodation discussions, a diversity, equity, and inclusion (“DEI”)  coordinator allegedly disparaged her faith, calling her “evil” and a “liar.” Shortly after, she was fired for refusing to comply with the training requirements.

Kloosterman commenced an action in the Western District of Michigan against the Hospital and its administrators (collectively, the “Hospital Defendants”) under § 1983 (First and Fourteenth Amendments), Title VII of the Civil Rights Act of 1964, and Michigan law. After the district court partially denied defendants’ motions to dismiss, and more than a year into the litigation, the hospital invoked Kloosterman’s employment agreement’s arbitration provision and moved to compel arbitration. The district court granted the motion and dismissed the suit.

Analysis

The principal issue was whether the Hospital lost its right to arbitrate under the FAA by litigating for a year before requesting arbitration. Slip op. at 6. The Court held that it did.

Section 3 Arbitration Default Exception

The operative statute, explained the Court, is Section 3 of the FAA, which requires Courts, when requested, to stay litigation in favor of arbitration. 9 U.S.C. § 3; slip op. at 7. Section 3 says “a court ‘shall on application of one of the parties stay the trial of the action until such arbitration has been had in accordance with the terms of the agreement, providing applicant for the stay is not in default in proceeding with such arbitration.’” Slip op. at 7 (quoting FAA § 3; emphasis added by the Court). Section 3 arbitration default, said the Court, is a procedural issue that is governed by Section 3 of the FAA. Slip op. at 6-8.

“[D]efault[,]” said the Court, “has a clear legal meaning.” Slip op. at 7 (citing Lackey v. Stinnie, 145 S. Ct. 659, 666–67 (2025)). “‘Default’ of a duty or promise” occurs “if the party omits or fails ‘to fulfil [the] duty’ or ‘promise’ through ‘neglect’ or otherwise.” Slip op. at 7 (quoting Black’s Law Dictionary 342 (2d ed. 1910), citing Webster’s New International Dictionary of the English Language 686 (2d ed. 1934)).

This textually-derived meaning of “default” “fits this context,” the Court explained. The Court said “[o]ne would naturally say that the defendant has not lived up to the ‘promise’ to arbitrate[]” if that person litigates an arbitrable dispute in court for a sufficiently long period prior to invoking arbitration. A person who does that “commit[s] a ‘default in proceeding. . . with arbitration’ within the “normal meaning” of Section 3. Slip op. at 7 (citing Am. Locomotive Co. v. Chem. Rsch. Corp., 171 F.2d 115, 121 (6th Cir. 1948)).

Court Concludes Section 3 Arbitration Default Exception Applies Even if the Parties did Not Request a Section 3 Stay of Litigation

While we need not discuss it in detail here, the Court carefully analyzed the interplay between, and applicability of, Sections 3 and 4 in a case like this one. See slip op. at 6-7, 8-9. That discussion was necessary because neither party sought a stay of litigation under Section 3, bringing into question whether Section 3’s default provision applied to this case. Relief was sought under Section 4, but Section 4 does not contain the “default” language that Section 3 does. Compare 9 U.S.C. § 3 with 9 U.S.C. § 4.

The Court concluded, however, that it “need not resolve this question because the same ‘default’ analysis applies either way.” Slip op. at 9. The Court said the U.S. Supreme Court had “held that the same procedural rules apply under both sections [3 and 4].” Slip op. at 9 (citing Boykin v. Family Dollar Stores of Mich., LLC, 3 F.4th 832, 837 (6th Cir. 2021) (citing Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 404 (1967)).

The Court opined that the present case may demonstrate why. “We would[,]” said the Court “render § 3’s default limitation meaningless if a party in default could avoid that limit by moving to compel arbitration rather than to stay the case.” Slip op. at 9 (citing Marie v. Allied Home Mortg. Corp., 402 F.3d 1, 12-13 (1st Cir. 2005); Sink v. Aden Enters., Inc., 352 F.3d 1197, 1200–01 (9th Cir. 2003); American Locomotive Co. v. Gyro Process Co., 185 F.2d 316, 317, 320–21 (6th Cir. 1950); and American. Locomotive, 171 F.2d at 121).

Did the Hospital Default in Proceeding with Arbitration by Litigating in Court the Merits of Kloosterman’s Claims?

The Court held that the defendants’ litigation on the merits of Kloosterman’s claims prior to demanding arbitration constituted a “default in proceeding with. . . arbitration” within the meaning of Section 3. Slip op. at 10-11. Prior to Morgan, the Sixth Circuit employed a two-part test to determine whether a party lost the right to invoke arbitration based on court litigation conduct. First, the arbitration opponent had to show that the arbitration proponent engaged in litigation conduct that was “‘completely inconsistent with any reliance on an arbitration agreement[.]’” Slip op. at 7 (quoting Solo v. United Parcel Serv. Co., 947 F.3d 968, 975 (6th Cir. 2020) (quoting Hurley v. Deutsche Bank Tr. Co. Ams., 610 F.3d 334, 338 (6th Cir. 2010))). Second, the “conduct must have caused ‘actual prejudice’” to the plaintiff.” Slip op. at 7 (citing Solo, 947 F.3d at 975) (citations omitted).

Morgan eliminated the prejudice requirement, from this two-part test, and consequently, the Court reaffirmed its holding in Schwebke v. United Wholesale Mortg. LLC, 96 F.4th 971, 974 (6th Cir. 2024) to that effect. Slip op. at 8. Schwebke assumed, without deciding, that litigation conduct “inconsistent with arbitration” would result in a loss of arbitration rights. Id.

Kloosterman, however, took the extra step of determining that litigation conduct inconsistent with arbitration constitutes a Section 3 arbitration default. Slip op. at 7, 10-11. What Kloosterman didn’t decide (and didn’t need to decide) was whether such inconsistent-with-arbitration conduct should be labelled “waiver” or “forfeiture.” See slip op. at 8 & 9.

Addressing whether the litigation conduct at issue constituted a Section 3 arbitration default, the Court explained that “our cases treat a defendant’s actions as ‘entirely inconsistent’ with arbitration if the defendant first seeks ‘an immediate and total victory’ in court through a motion to dismiss under Rule 12(b)(6) and then moves to arbitrate only after the court rejects this initial attempt to end the dispute.” Slip op. at 10 (quoting Solo, 947 F.3d at 975 (citation omitted)).

The Court held that a party seeking this kind of a judicial victory “is in ‘default’ of an arbitration agreement because the party has failed to ‘observe’—indeed, has affirmatively disavowed—the ‘promise’ to arbitrate the merits.” Slip op. at 10 (quoting Black’s Law Dictionary at 342). For, explained the Court, if such a defendant prevails on the motion, it has forgone arbitration completely, and “defendants may not ‘play heads I win, tails you lose’ by keeping arbitration in reserve just in case a court does not reject the entire case at the start.” Slip op. at 10 (quoting Cabinetree, 50 F.3d at 391 and citing Solo, 947 F.3d at 975). The Court explained how this “inconsistent with arbitration” analysis aligned with that espoused by several other circuits. See slip op. at 10 (citing cases).

The Hospital Defendants were under this standard in default of their obligation to arbitrate, explained the Court. Before invoking arbitration they twice moved to dismiss all claims “with prejudice,” seeking a complete final and binding judicial resolution that would effectively preclude Ms. Kloosterman from refiling her claims in another forum, including an arbitral one. Slip op. at 10-11. They renewed the motion after Ms. Kloosterman filed her first amended complaint. Slip op. at 11. They opposed Ms. Kloosterman’s request to file a second amended complaint, arguing that it would be “futile” because the allegations would supposedly not withstand a motion to dismiss. Slip op. at 11.

It was only when the district court rejected the motion to dismiss in part—and concluded that Ms. Kloosterman’s had adequately stated claims under the First Amendment, Title VII, and Michigan law—that the Hospital Defendants switched gears and invoked arbitration. Slip op. at 11. As the Court put it, it was only then, “after the [Hospital Defendants] got a sneak peak of how the case would proceed if it remained in court,” that the Hospital Defendants “shift[ed] to wanting to take its chances with the arbitrators.” Slip op. at 11 (citation omitted).

That “heads I win, tails you lose” gambit disavowed the Hospital Defendants’ contractual promise to arbitrate. Slip op. at 11. By seeking a judicial decision on the merits of an arbitrable issue, the Hospital Defendants were “in ‘default’” of the arbitration agreement “and so lost [their] right to seek arbitration under the Federal Arbitration Act.” Slip op. at 11 (citing 9 U.S.C. § 3).

The Court rejected the Hospital Defendants’ argument that Michigan’s arbitration statute displaced FAA procedural law. The Hospital Defendants argued that there was no loss of arbitration rights because Michigan’s arbitration statute, unlike Section 3, did not provide for denial of a stay where the arbitration proponent had defaulted in proceeding with arbitration. While, explained the Court, a choice-of-law provision, like the one here, may make a state’s substantive law applicable,  state procedural law does not displace federal procedural law in an action pending in federal court. See slip op. at 12.

The Court also offered some helpful guidance on its decision not to establish an inflexible, bright line rule about what litigation conduct is “completely inconsistent with arbitration.” The Court explained that “the question whether a party has acted inconsistently with the right to arbitrate [continues to] turn[] ‘on the totality of the circumstances’ rather than on a ‘bright-line rule’ that might cut across different cases.” Slip op. at 11 (quoting Schwebke, 96 F.4th at 976 (citing Johnson Assocs. Corp. v. HL Operating Corp., 680 F.3d 713, 719 (6th Cir. 2012)). But the Court said prior Sixth Circuit cases “made this case-by-case point to clarify that defendants can relinquish the right to arbitrate even if (unlike in this case) they never file a ‘dispositive motion’ that ‘affirmatively’ seeks a decision on the merits from the court.” Slip op. at 11 (citations omitted).  

That strongly suggests that in cases like Kloosterman, where the inconsistent conduct was an attempt to achieve a total victory on the merits on arbitrable issues, Section 3 default findings should ordinarily follow, irrespective of most or all the other circumstances surrounding the Section 3 arbitration default.

The Court underscored this point by distinguishing certain cases in which the filing of a motion to dismiss did not result in a default finding. See slip op. at 13-14 (citing and discussing cases). “[N]one of these cases[,]” said the Court, “has facts like this one—in which defendants moved to dismiss all claims on their merits while knowing that the claims were subject to arbitration.” Slip op. at 13 (emphasis in original).

The Court also pointed out that, in any event, the Hospital Defendants identified “no other case-specific conduct that would suggest [they] preserved [their] right to arbitrate.” Slip op. at 11. That conduct, including discussing discovery issues with Ms.  Kloosterman’s counsel, and selecting a discovery plan, “further bolster[ed]” the Court’s conclusion about Section 3 arbitration default. Slip op. at 11 (citations omitted

Because the hospital defaulted on its obligation to arbitrate, the district court erred in compelling arbitration. The Court accordingly reversed and remanded the district court’s order and judgment compelling arbitration.

Kloosterman underscores that employers (and other defendants) cannot litigate aggressively in court, seek dismissal with prejudice, and then pivot to arbitration. The FAA Section 3 “default” exception prevents that kind of maneuvering. For practitioners, Kloosterman is a reminder: if arbitration is to be pursued, it must be raised early and consistently.

Judge Murphy’s and Judge Bloomekatz’s Concurring Opinions Concerning the “Forfeiture” Versus “Waiver” Issue

At a later date we shall address in a separate post the thoughtful, dueling concurring opinions of Judges Murphy and Bloomekatz. The issue of whether the loss of arbitration rights through litigation conduct constitutes “waiver” versus “forfeiture,” and why that matters, is intriguing and will most likely get a good deal of judicial attention in subsequent cases.

The Brief of Arbitration Practitioners and Scholars as Amici Curiae in Support of Plaintiff-Appellant

Several thoughtful amici curiae—i.e., “friend of the court”— briefs were filed, and accepted by the Sixth Circuit, in this important case. The author’s friends and colleagues, Richard D. Faulkner, Esq. and 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.

As amici we focused on three central points, all of which bear on the enforceability of the arbitration agreement and the district court’s errors in compelling arbitration, although only the first point—the litigation conduct inconsistent with arbitration point—addressed an issue on which the Court ruled.

First, the amici argued that the district court’s analysis of waiver (or, as the term Ms. Kloosterman and we preferred, forfeiture) was fundamentally flawed. We explained that the defendants had twice moved to dismiss Kloosterman’s claims under Rule 12(b)(6), seeking outright judicial determinations on the merits. Under Sixth Circuit precedent—particularly Solo—such motions are “completely inconsistent” with reliance on arbitration. (See Dkt.# 55 at 12-13, 15-20.) We emphasized that even before the Supreme Court’s decision in Morgan eliminated the prejudice requirement, this conduct would have supported a finding of default. To allow defendants to litigate on the merits and then invoke arbitration, we warned, would endorse the “heads I win, tails you lose” gamesmanship referred to in Cabinetree, 50 F.3d at 391. (Dkt.#55 at 18-20)

Second, we argued that the district court erred in allowing the individual Hospital Defendants—hospital officers and employees who were not parties to Kloosterman’s employment contract—to enforce the arbitration clause. Given the Court’s ruling on the default issue, the Court did not need to address this issue, which concerned the rights of nonsignatories to the arbitration agreement.

The employment agreement expressly provided that it was enforceable “only by the parties” and barred third-party enforcement. Both Michigan law and the FAA require courts to honor such contractual limitations. We rejected the district court’s reliance on Altobelli v. Hartmann, 499 Mich. 284(2016), and agency principles, explaining that neither supported converting nonsignatory employees into beneficiaries of an arbitration agreement they never signed.

Third, we raised concerns about compelling Ms. Kloosterman to arbitrate her constitutional and statutory claims before the American Arbitration Association (AAA). We argued that the AAA’s public embrace of diversity, equity, and inclusion initiatives is highly suggestive of “institutional bias” in cases like Kloosterman’s, where DEI policies are at the heart of the dispute. In our view, requiring arbitration before an institution that publicly champions DEI undermines the promise of a neutral forum and threatens the effective vindication of federal rights. (For a discussion of similar issues, see our post discussing the Flores case recently decided by the Second Circuit.) 

Taken together, our arguments reinforced the appellant’s position that the defendants had forfeited their arbitration rights, that the nonsignatory individuals could not compel arbitration, and that, even if the clause were otherwise enforceable, arbitration before the AAA would not provide a fair or neutral forum for adjudicating Kloosterman’s constitutional and civil rights claims.

Email Philip J. Loree Jr. if you are interested in receiving  a free copy of the Arbitration Practitioners and Scholars amicus brief.

A Well-Deserved Shout-Out to Ms. Kloosterman’s Counsel and Ms. Kloosterman Herself

Ms. Kloosterman was represented on brief and oral argument by Kevin Joseph Wynosky, Esq., a highly talented and impressively credentialed associate at Clement & Murphy, Alexandria, Virginia, the law firm of former Solicitor General, and preeminent U.S. Supreme Court litigator, Paul D. Clement, Esq. Joseph did a fabulous job on Ms. Kloosterman’s main and reply briefs and skillfully handled the oral argument before the Sixth Circuit.

Ms. Kloosterman was also represented by the very able Kayla Toney, Esq.. a Counsel at the First Liberty Institute in Plano, Texas, who also serves as amicus coordinator for First Liberty’s appellate cases, including its U.S. Supreme Court cases. Kayla’s practice at First Liberty is focused on religious liberty matters and First Amendment rights for clients of all faiths, especially on education-related cases.  She deserves special recognition for her tireless efforts on this case.

Three other First Liberty attorneys, two of whom are First Liberty executives, also appeared in Ms. Kloosterman’s appeal: Jeffrey Carl Mateer, Esq., Executive Vice President and Chief Operating/Legal Officer; David J. Hacker, Esq., Vice President of Legal Services & Senior Counsel; and Roger Lucien Byron, Esq., Senior Counsel. They, too, deserve special mention for their representation of Ms. Kloosterman, and their work at First Liberty.

And let’s not forget Ms. Kloosterman herself, who, with the help of her attorneys, has bravely challenged the constitutional and statutory legality of her discharge from employment but also the Hospital Defendants’ attempts to enforce alleged arbitration rights in the face of their own default. Rick, Chuck, and the author wish  her all the best of luck with her quest for justice.

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.

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

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The post Sixth Circuit Says Employee Physician Assistant Gets to Litigate Her Religious Discrimination Claims Because the Employer Defendants were Guilty of Section 3 Arbitration Default appeared first on The Arbitration Law Forum.