No Mandamus Review of Order Compelling Arbitration Even If Erroneous Because Claimants Are Exempt from Arbitrating under FAA — Existence of Exemption Is Not an Issue of Arbitrability — Error on Issue of First Impression Not “Clear”
From In re Van Dusen, 2011 U.S. App. LEXIS 15398 (9th Cir. July 27, 2011):
This matter comes before us on petition for a writ of mandamus. Petitioners argue that the District Court erred by refusing to resolve their claim of exemption from arbitration under Section 1 of the Federal Arbitration Act ("FAA") ... before compelling arbitration pursuant to those acts. We agree that Petitioners make a strong argument that the District Court erred, but we nonetheless hold that this case does not warrant the extraordinary remedy of mandamus. We therefore deny the petition.
Petitioners Joseph Sheer ("Sheer") and Virginia Van Dusen ("Van Dusen") (collectively "Petitioners") are interstate truck drivers who entered independent contractor operating agreements ("ICOAs") with Swift Transportation Co., Inc. ("Swift"). In December 2009, Sheer brought suit against Swift and Interstate Equipment Leasing, Co., Inc. ("IEL").... On March 24, 2010, Petitioners filed a Second Amended Collective and Class Action Complaint against Swift and IEL (collectively "Defendants), alleging violations of the Fair Labor Standards Act, 29 U.S.C. § 206 et seq., forced labor in violation of 18 U.S.C. § 1589, unjust enrichment, and violations of California and New York labor laws. ***
On May 21, 2010, Defendants moved to compel arbitration pursuant to arbitration clauses contained in the ICOAs. Petitioners opposed the motion, asserting that the ICOAs were exempt from arbitration under Section 1 of the FAA ("Section 1"), which exempts "contracts of employment of seaman, railroad employees, or any other class of workers engaged in foreign or interstate commerce" from the FAA's provisions. 9 U.S.C. § 1. The District Court declined to rule on the applicability of the exemption, holding that the question of whether an employer/employee relationship existed between the parties was a question for the arbitrator to decide in the first instance. Finding that the ICOAs contained valid arbitration clauses, the District Court ordered arbitration. ... Petitioners now seek mandamus relief before this court.***
The writ of mandamus is a "drastic and extraordinary" remedy "reserved for really extraordinary causes." ***The petitioner bears the burden of showing that "its right to issuance of the writ is 'clear and indisputable.'" ***
In deciding whether to grant mandamus relief, we consider five factors: (1) whether the petitioner has other adequate means, such as a direct appeal, to attain the relief he or she desires; (2) whether the petitioner will be damaged or prejudiced in a way not correctable on appeal; (3) whether the district court's order is clearly erroneous as a matter of law; (4) whether the district court's order makes an "oft-repeated error," or "manifests a persistent disregard of the federal rules"; and (5) whether the district court's order raises new and important problems, or legal issues of first impression. ***
The third factor, clear error as a matter of law, is a necessary condition for granting a writ of mandamus. Hernandez v. Tanninen, 604 F.3d 1095, 1099 (9th Cir. 2010). The remaining Bauman factors, while useful as an analytical framework, seldom yield "bright-line distinctions." Bauman, 557 F.2d at 655. "[Q]uestions of degree" and "conflicting indicators" frequently arise, id., rendering the factors unsuitable for mechanical application. In the final analysis, the decision of whether to issue the writ lies within our discretion. Cole v. U.S. Dist. Court for Dist. of Idaho, 366 F.3d 813, 817 (9th Cir. 2004).***
Under established law, "[t]he question whether the parties have submitted a particular dispute to arbitration, i.e., the question of arbitrability, is an issue for judicial determination [u]nless the parties clearly and unmistakably provide otherwise." Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83 (2002) (internal quotations omitted); First Options of Chicago, Inc. v. Kaplan, 514 U.S. 938, 943 (1995) ("Just as the arbitrability of the merits of a dispute depends upon whether the parties agreed to arbitrate that dispute, so the question 'who has the primary power to decide arbitrability' turns upon what the parties agreed about that matter.") (internal citations and italics omitted); AT & T Techs., Inc. v. Commc'ns Workers of Am., 475 U.S. 643, 649 (1986) ("Unless the parties clearly and unmistakably provide otherwise, the question of whether the parties agreed to arbitrate is to be decided by the court, not the arbitrator."). The issue now before us is one of first impression in the federal courts of appeal: we consider whether the district court must itself determine the applicability of a Section 1 exemption, or whether the exemption question is a "question of arbitrability" that contracting parties may validly delegate to an arbitrator. ***
Here, Defendants moved to invoke the District Court's authority to order arbitration under Section 4 of the FAA. The District Court, acting pursuant to that section, compelled Petitioners to arbitrate. In essence, Defendants and the District Court have adopted the position that contracting parties may invoke the authority of the FAA to decide the question of whether the parties can invoke the authority of the FAA. This position puts the cart before the horse: Section 4 has simply no applicability where Section 1 exempts a contract from the FAA, and private contracting parties cannot, through the insertion of a delegation clause, confer authority upon a district court that Congress chose to withhold.
The Supreme Court's decision in Bernhardt v. Polygraphic Co. of America, 350 U.S. 198 (1956), is instructive here. In Bernhardt, the Court of Appeals upheld a district court's decision to stay litigation pending arbitration, although the contract containing the arbitration agreement did not evidence a transaction involving commerce within the meaning of 9 U.S.C. § 2. Id. at 199-200. Section 3 of the FAA, as the Court of Appeals reasoned, "covers all arbitration agreements even though they do not involve . . . transactions in commerce." Id. at 201. The Supreme Court reversed, explicitly rejecting the appellate court's interpretation:
We disagree with that reading of the Act. Sections 1, 2, and 3 are integral parts of a whole. To be sure, § 3 does not repeat the words "maritime transaction" or "transaction involving commerce", used in §§ 1 and 2. But §§ 1 and 2 define the field in which Congress was legislating. Since § 3 is a part of the regulatory scheme, we can only assume that the "agreement in writing" for arbitration referred to in § 3 is the kind of agreement which §§ 1 and 2 have brought under federal regulation.
Id. The Bernhardt Court's reasoning applies with equal force in interpreting the relationship between Sections 1, 2, and 4 of the FAA. It follows that a district court may not compel arbitration pursuant to Section 4 unless the "agreement for arbitration" is of a kind that Sections 1 and 2 have brought under federal regulation.
Our reading of the FAA is consistent with the relevant case law in the field. As previously stated, the law clearly permits parties to delegate "questions of arbitrability" to an arbitrator. See, e.g., AT & T Techs., 475 U.S. at 649. The Supreme Court defines "questions of arbitrability" as questions of "whether the parties have submitted a particular dispute to arbitration." Howsam, 537 U.S. at 83. The question at issue here does not fit within that definition, however: whatever the contracting parties may or may not have agreed upon is a distinct inquiry from whether the FAA confers authority on the district court to compel arbitration. The Court has never indicated that parties may delegate this determination to an arbitrator in the first instance; on the contrary, it has affirmed that, when confronted with an arbitration clause, the district court must first consider whether the agreement at issue is of the kind covered by the FAA. See Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395, 401 (1967) (resolving "first question" of whether a consulting agreement "evidenc[ed] transactions in 'commerce'"). This is equally true where the arbitration clause at issue delegates an arbitrability question because "[a]n agreement to arbitrate a gateway issue is simply an additional, antecedent agreement the party seeking arbitration asks the federal court to enforce, and the FAA operates on this additional arbitration agreement just as it does on any other." Rent-a-Center, West, Inc. v. Jackson, U.S. , 130 S. Ct. 2772, 2777-78 (2010) (emphasis added).
Though we favor Petitioners' interpretation over that of the District Court, this does not conclude our analysis under the third Bauman factor. "[W]e will not grant mandamus relief simply because a district court commits an error, even one that would ultimately require reversal on appeal." Wilson v. U.S. Dist. Court for E. Dist. of Cal., 103 F.3d 828, 830 (9th Cir. 1996) (quotation omitted); see also In re Morgan, 506 F.3d 705, 713 (9th Cir. 2007) (holding that district court error was not "clear error" in denying petition for mandamus); United States v. Mehrmanesh, 652 F.2d 766, 770 (9th Cir. 1981) ("Even if the trial court made an error of law . . . that fact itself does not render its decision subject to correction by mandamus, for 'then every interlocutory order which is wrong might be reviewed under the All Writs Act.'") (quoting Bankers Life, 346 U.S. at 383). Mandamus may issue only if we determine that the District Court's decision was clearly erroneous. Under the present circumstances, we cannot say that the clear error standard is met. First, we note that the question in this case — whether the district court, as opposed to an arbitrator, must determine the applicability of an FAA exemption — is one of first impression in the federal courts of appeal. The absence of controlling precedent weighs strongly against a finding of clear error. ***
Furthermore, while we believe that the law, on balance, favors Petitioners' position, we recognize that certain language appearing in the relevant doctrine could be interpreted to lend support to the District Court's position. Our opinions have, for example, emphasized that "[t]he FAA embodies a clear federal policy in favor of arbitration," Simula, Inc. v. Autoliv, Inc., 175 F.3d 716, 719 (9th Cir. 1999), and that "[a]ny doubts concerning the scope of arbitrable issues should be resolved in favor of arbitration." Id. (quoting Moses H. Cone Mem'l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24- 25 (1983)). Moreover, district courts have been instructed to consider only the validity and scope of the arbitration agreement itself when addressing whether a question is arbitrable, Chiron Corp. v. Ortho Diagnostic Sys., Inc., 207 F.3d 1126, 1130 (9th Cir. 2000), and to avoid entanglement with the merits of the underlying claims. AT & T Techs., 475 U.S. at 649- 50. The dissent in Rent-a-Center opined that where "questions of arbitrability are bound up in an underlying dispute," Supreme Court precedent "reflects a judgment that the national policy favoring arbitration outweighs the interest in preserving a judicial forum for questions of arbitrability." Rent-a-Center, 130 S. Ct. at 2787-88 (Stevens, J., dissenting) (internal quotations, citations, and emphasis omitted).
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