Commercial Litigation and Arbitration

Recent Federal Practice Developments 2010

Recent Federal Practice Developments 2010

Gregory P. Joseph*

This article analyzes recent developments in federal practice, including two Supreme Court decisions rendered in the past 60 days.

Relation Back of Pleading Amendment. Rule 15(c) determines when an amended pleading relates back to the date of the original filing. Rule 15(c)(1)(C)(ii) requires that, within 120 days of filing, the belatedly-named defendant "knew or should have known that the action would have been brought against it, but for a mistake concerning the proper party's identity." The plaintiff in Krupski v. Costa Crociere SpA, 2010 U.S. LEXIS 4567 (U.S. June 7, 2010) sued a trade name (Costa Cruises), rather than the appropriate entity (Costa Crociere SPA), whose name appeared on the back of the plaintiff's cruise ticket. The lower courts denied relation back because the plaintiff (1) knew of the existence of the correct entity before the limitations period ran and, therefore, made no "mistake," and (2) unduly delayed seeking leave to amend.

The Supreme Court reversed, holding that "relation back under Rule 15(c)(1)(C) depends on what the party to be added knew or should have known, not on the amending party's knowledge or its timeliness in seeking to amend the pleading." Krupski emphasized that mere knowledge of the existence of the later-named defendant does not preclude a mistake as to its role or status — and that there was no conceivable reason, other than mistake, that one would sue a defendant incapable of providing relief. Note, however, that where an incorrect but viable defendant is named and the correct defendant is then identified to the pleader (as it was here, in an answer), the result could be different. The pleader may be determined to have made a choice, rather than a mistake.

Classwide Arbitration Requires Contractual Consent. Silence in an arbitration agreement is an insufficient basis on which to proceed with classwide arbitration, under the Supreme Court's ruling in Stolt-Nielsen S. A. v. Animalfeeds Int’l Corp., 130 S. Ct. 1758 (2010). Stressing that "it is ... clear from our precedents and the contractual nature of arbitration that parties may specify with whom they choose to arbitrate their disputes," the Supreme Court held that "[a]n implicit agreement to authorize class-action not a term that the arbitrator may infer solely from the fact of the parties' agreement to arbitrate." There is some tension between Stolt and Arthur Andersen LLP v. Carlisle, 129 S.Ct. 1896 (2009), in which the Court held last year that, if state law permits a non-signatory to an arbitration agreement to compel arbitration, the Federal Arbitration Act (FAA) permits it as well. Under Carlisle, the arbitration clause, which ostensibly permits the parties to determine "with whom they choose to arbitrate," does not necessarily limit arbitration to the named parties.

Non-Signatories and International Arbitration. Arthur Andersen applies only to domestic arbitration governed by the FAA. The Fifth Circuit has extended it to international arbitrations governed by the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Todd v. Steamship Mut. Underwriting Ass’n, 601 F.3d 329 (5th Cir. 2010) reasoned that, "in both FAA and [New York] Convention cases, courts have largely relied on the same common law contract and agency principles to determine whether nonsignatories must arbitrate, and not law derived from statute or treaty." Consequently, choice of governing law — often given little attention by drafters — has ramifications as to the identity of potential parties to a future arbitration that are not necessarily apparent on the face of the arbitration clause.

Interlocutory Review in the Wake of Mohawk. In late 2009, the Supreme Court ruled in Mohawk Indus. v. Carpenter, 130 S. Ct. 599 (2009), that the collateral order doctrine is unavailable to obtain interlocutory review of orders overruling assertions of attorney-client privilege. The Court identified three possible alternatives: contempt, mandamus and 28 U.S.C. § 1292(b). Since that decision, the contempt avenue has been substantially circumscribed and mandamus has been granted principally in cases raising important issues of first impression.

The Fourth Circuit held in United States v. Myers, 593 F.3d 338 (4th Cir. 2010) that only a non-party may immediately appeal a civil contempt order. A party, in contrast, must suffer criminal contempt to appeal an adverse privilege decision — civil contempt is not sufficient.

Since Mohawk, mandamus has been granted on privilege issues of first impression both in In re United States, 590 F.3d 1305 (Fed. Cir. 2009) — to determine whether the fiduciary exception to the attorney-client privilege applies in tribal trust cases — and in Perry v. Schwarzenegger, 591 F.3d 1147 (9th Cir. 2010), to determine whether a first amendment defense against discovery exists. Once the issue of first impression was decided, a subsequent request for mandamus in Perry — to obtain review of the trial court's application of the privilege — was denied (Perry v. Schwarzenegger, 602 F.3d 976 (9th Cir. 2010)). These cases may tie, in some Circuits, to the doctrine of advisory (as opposed to traditional) mandamus, which "may be used to settle important issues of first impression where there is a 'substantial allegation of usurpation of power' by the district court." See In re Zyprexa Prods. Liab. Litig., 594 F.3d 113, 123 (2d Cir. 2010) (Kaplan, D.J., concurring).

In a privilege case not involving an issue of first impression, mandamus was granted to reverse a finding of blanket, subject matter waiver of privilege and work product, in Hernandez v. Tanninen, 2010 U.S. App. LEXIS 9681 (9th Cir. May 12, 2010). The Hernandez Court upheld the District Court's determination that a waiver had been effected but concluded that the finding of blanket waiver constituted "clear error" and was "particularly injurious." This logic has potentially broad ramifications for mandamus in any case in which a subject matter waiver is found.

Supplemental Jurisdiction. The First Circuit joined the Second and Seventh in holding that 28 U.S.C. § 1367 confers supplemental jurisdiction over both compulsory and at least some permissive counterclaims. Jurisdiction, under Global Naps, Inc. v. Verizon New Eng. Inc., 603 F.3d 71 (1st Cir. 2010), is not limited to claims that arise from a common nucleus of operative fact but extends to all claims that "form part of the same case or controversy under Article III" (quoting § 1367).

Section 1367(d) tolls the limitations period for any claim asserted under § 1367(a) "for a period of 30 days after it is dismissed unless State law provides for a longer tolling period." Courts have interpreted this clause in two different ways. Some take the "extension approach," under which the state statute continues to run during the pendency of the federal action, with an additional 30 days tacked on at the end. Under the "suspension approach," the limitations clock is stopped while the federal case is pending and for 30 days thereafter, at which point it resumes ticking away. The decision in In re Vertrue Mktg. & Sales Pracs. Litig., 2010 U.S. Dist. LEXIS 38582 (N.D. Ohio April 16, 2010) adopts the suspension approach, noting that "courts appear evenly split" on the question and setting forth numerous authorities on both sides of the question.

Circuit Review of Unobjected-to Magistrate Judge's R&R. The question in Kaboggozamusoke v. Rye Town Hilton Hotel, 2010 U.S. App. LEXIS 8094 (2d Cir. April 6, 2010) was the appropriate standard of appellate review for a magistrate judge's report and recommendation that was not objected to before the district court. After finding that the failure to object waived all objections, the Second Circuit noted that this waiver was "nonjurisdictional" and could be excused "in the interests of justice." To obtain review, the Court indicated that the appellant must establish that defaulted arguments have "substantial merit" and that the magistrate judge committed "plain error" (neither of which was present).

Change of Law Following Appellate Mandate. The Supreme Court rendered its decision in Hall Street Assocs. v. Mattel, Inc., 552 U.S. 576 (2008), after the First Circuit entered judgment vacating an arbitration award on ground that the arbitrators had manifestly disregarded the law — a ground of dubious viability, at best, after Hall Street. The losing party in Kashner Davidson Secs. Corp. v. Mscisz, 601 F.3d 19 (1st Cir. 2010) therefore moved the First Circuit to recall its mandate. The request was rejected. The First Circuit observed that "the power to recall a mandate is 'one of last resort, to be held in reserve against grave, unforeseen contingencies,'" and that the movant had "failed to take advantage of numerous earlier opportunities to raise the Hall Street argument through ordinary procedures" — including sending a letter to the Court of Appeals that Hall Street pending in the Supreme Court. Following the Supreme Court's docket is mandatory, not discretionary.

"Weight of the Evidence" on Appeal. May a court of appeals rule on the merits of a Rule 59 motion based on the weight of the evidence where the district court has not done so (here, because it found the motion waived)? The Ninth Circuit suggested that it might lack the power to do so in Kode v. Carlson, 596 F.3d 608 (9th Cir. 2010), because its role is to determine whether the trial court abused its discretion — something which by definition has not been exercised. It noted that, in order to decide the Rule 59 motion, it would have to determine that a district court ruling, on remand, would necessarily involve an abuse of discretion. Instead, it vacated and remanded for consideration of the Rule 59 motion.

Preliminary Injunction Standards. Historically, the Second Circuit, like seven others, has permitted issuance of a preliminary injunction, even if moving party cannot establish a likelihood of success on the merits, where the movant presents serious questions going to the merits and the balance of hardships tips decidedly in the movant's favor. The issue in Global Markets, Inc. v. VCG Spec. Opportunities Master Fund Ltd., 598 F.3d 30 (2010) was whether this flexible standard was effectively overruled by — and a likelihood of success now mandatory under — the Supreme Court's decisions in Munaf v. Geren, 553 U.S. 674 (2008), Winter v. Natural Res. Def. Council, 129 S. Ct. 365 (2008), and Nken v. Holder, 129 S. Ct. 1749 (2009). The Second Circuit concluded that the serious-questions standard remained viable on the ground, among others, that if the Supreme Court had meant to abrogate the more flexible standard, "one would expect some reference to" it in one of the three opinions.


Mr. Joseph, of Gregory P. Joseph Law Offices LLC, New York, is the President-Elect of the American College of Trial Lawyers and a past Chair of the Section of Litigation of the American Bar Association. He can be reached at

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