Court Opinion

ID: 4562739
Source: CourtListenerOpinion
Date Created: 2020-09-03 16:14:27.961188+00
Date Added: 2024-06-11T12:11:22.074439
License: Public Domain

FILE                                                                    THIS OPINION WAS FILED
                                                                                   FOR RECORD AT 8 A.M. ON
       IN CLERK’S OFFICE                                                              SEPTEMBER 3, 2020
SUPREME COURT, STATE OF WASHINGTON
       SEPTEMBER 3, 2020
                                                                                      SUSAN L. CARLSON
                                                                                    SUPREME COURT CLERK

             IN THE SUPREME COURT OF THE STATE OF WASHINGTON

        EVETTE BURGESS,                                )
                                                       )     No. 98083-7
                              Petitioner,              )
                                                       )
               v.                                      )     En Banc
                                                       )
        LITHIA MOTORS, INC.; BMW OF                    )
        SPOKANE d/b/a CAMP AUTOMOTIVE,                 )
        INC. d/b/a BMW OF SPOKANE,                     )
                                                       )
                              Respondents.             )
                                                       )     Filed: September 3, 2020

               JOHNSON, J.—This case involves the availability of judicial review during

        ongoing contractual arbitration proceedings conducted under the Federal Arbitration

        Act (FAA), 9 U.S.C. §§ 1-16. Evette Burgess and Lithia Motors entered into

        arbitration to resolve an employment dispute. During arbitration proceedings,

        Burgess filed a motion with the court to terminate arbitration, alleging that Lithia

        and the arbitrator breached the arbitration agreement. The superior court denied

        Burgess’s motion, citing a lack of jurisdiction, and certified the matter for direct

        review, which we granted. We affirm the superior court’s order. Under the FAA, we
Burgess v. Lithia Motors, Inc., No. 98083-7

hold that judicial review is limited to deciding gateway disputes, which concern

enforceability of the arbitration clause, and addressing the award after arbitration.

                                              FACTS

       In January 2018, Burgess filed suit in Spokane County Superior Court against

Lithia based on claims of discrimination, harassment, and wrongful termination.

Burgess initiated discovery under the court’s supervision. In early February, Lithia

requested that the parties move to arbitration per the terms of an arbitration clause

that Burgess had signed as a condition to employment. Neither party challenged the

validity of the arbitration clause.1

       In July 2018, the parties agreed to arbitration. The parties entered into

arbitration independently, not by court order, per the terms of the earlier arbitration

clause. The arbitration provision stated, “The claims outlined shall be submitted to

and determined exclusively by binding arbitration under the Federal Arbitration Act,

in conformity with the Federal Rules of Civil Procedure [FRCP] and Rules of

Evidence [FRE].” Clerk’s Papers (CP) at 293. Burgess confirmed with the arbitrator

that she “agree[d] to the FRCP and FRE requirements.” CP at 349.

       During arbitration, Burgess claims that Lithia failed to respond in a timely

manner to interrogatories. At one point, Lithia provided general objections in

       1
         The record contains written communications between the two parties where Burgess
indicates some portions of the arbitration agreement may be unconscionable. However, no formal
challenges to the enforceability of the arbitration clause were presented to the court.

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Burgess v. Lithia Motors, Inc., No. 98083-7

response to Burgess’s first interrogatories and requests for production. Lithia largely

asserted that the discovery requests were privileged and conditioned production on

“a mutually agreed protective order” and noted that a privilege log would be

forthcoming. CP at 120.

       In August 2018, Burgess filed a motion with the arbitrator to compel Lithia’s

answers to the first set of discovery. Citing FRCP 34, Burgess alleged that Lithia’s

responses were untimely, inadequate, and made in bad faith. She also argued that

Lithia waived its right to a privilege log. The arbitrator denied Burgess’s motions.

He found that Lithia, although untimely, provided answers to the first set of

discovery, and he ordered a conference to resolve the bad faith allegations. The

arbitrator also found that Lithia did not waive its right to seek a protective order and

directed the parties to confer.

       After this ruling, Burgess filed in superior court “Plaintiff’s Motion to Vacate

Arbitrator’s Order Denying Discovery, Terminate Arbitration, and Issue a Case

Scheduling Order.” CP at 48. Burgess alleged that Lithia breached the arbitration

agreement by failing to comply with discovery deadlines under FRCP 34 and the

objection requirements of FRCP 33(b)(4). She also argued that the arbitrator’s ruling

constituted a breach of the agreement by failing to enforce the FRCP.

       The superior court denied Burgess’s motion, ruling that

       2. The arbitration clause in this case is enforceable.

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Burgess v. Lithia Motors, Inc., No. 98083-7

       ....
       5. This superior court is therefore prohibited from addressing
          Plaintiff’s argument as to alleged breaches by Lithia and the
          Arbitrator in the course of arbitration as it does not have jurisdiction
          to do so.

CP at 612. The court granted Burgess’s request to certify the matter for review under

RAP 2.3(b)(4). The court also certified the following question:

              Does the superior court have jurisdiction to address an
       employee’s contractual breach argument based upon acts alleged in
       the course of binding arbitration, or is the superior court’s jurisdiction
       in a contractual arbitration limited to issues occurring before and
       after—but not during—the proceeding. Specifically, is the superior
       court’s jurisdiction limited to ruling on whether there is an
       enforceable arbitration clause at the inception of arbitration and
       addressing the arbitration award at its conclusion?

CP at 613. The Court of Appeals granted discretionary review and certified the

case to this court pursuant to RCW 2.06.030 and RAP 4.4.

                                         ANALYSIS

       The parties elected to resolve this dispute through binding arbitration under

the FAA. We are asked whether and to what extent the FAA authorizes a court to

review a challenge to the arbitration agreement once the claims have been submitted

to arbitration. Burgess contends that section 2 of the FAA authorizes the court to

resolve a breach of the arbitration agreement challenge during ongoing arbitration

proceedings. Lithia argues that the FAA limits court involvement to the “bookends”

of arbitration: initial enforceability and review of the final arbitration award.

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Burgess v. Lithia Motors, Inc., No. 98083-7

       The majority of federal circuits that have reviewed this issue determined that

the FAA generally restricts judicial involvement to the bookends of arbitration and

precludes any judicial intervention once arbitration begins. In re Sussex, 781 F.3d

1065, 1073 (9th Cir. 2015); see also Savers Prop. & Cas. Ins. Co. v. Nat’l Union

Fire Ins. Co. of Pittsburg, PA, 748 F.3d 708, 716 (6th Cir. 2014) (“Parties to an

arbitration generally may not challenge the fairness of the proceedings or the

partiality of the arbitrators until the conclusion of the arbitration and the rendition of

a final award.”); Blue Cross Blue Shield of Mass., Inc. v. BCS Ins. Co., 671 F.3d

635, 638 (7th Cir. 2011) (“Review comes at the beginning or the end, but not in the

middle.”); Gulf Guar. Life Ins. Co. v. Conn. Gen. Life Ins. Co., 304 F.3d 476, 487

(5th Cir. 2002) (“The FAA does not provide therefore for any court intervention

prior to issuance of an arbitral award beyond the determination as to whether an

agreement to arbitrate exists and enforcement of that agreement by compelled

arbitration of claims that fall within the scope of the agreement even after the court

determines some default has occurred.”); Michaels v. Mariforum Shipping, S.A., 624

F.2d 411, 414 (2nd Cir. 1980).

       The interplay between judicial and arbitration proceedings under the FAA are

defined by several statutory provisions. Section 2 of the FAA states that a written

agreement to submit an existing controversy to arbitration “shall be valid,

irrevocable, and enforceable, save upon such grounds as exist at law or in equity for

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Burgess v. Lithia Motors, Inc., No. 98083-7

the revocation of any contract.” 9 U.S.C. § 2. Section 4 of the FAA directs that

“upon being satisfied that the making of the agreement for arbitration or the failure

to comply therewith is not in issue, the court shall make an order directing the

parties to proceed to arbitration in accordance with the terms of the agreement.” 9

U.S.C. § 4. Section 3 of the FAA authorizes courts to “stay the trial of the action

until such arbitration has been had in accordance with the terms of the agreement.” 9

U.S.C. § 3. Section 9 of the FAA states that “any party to the arbitration may apply

to the court so specified for an order confirming the award, and thereupon the court

must grant such an order unless the award is vacated, modified, or corrected.” 9

U.S.C. § 9. Sections 10 and 11 of the FAA specify the limited grounds for which a

court may vacate, modify, or correct an arbitration award. Taken together, these

provisions indicate that arbitration is conducted primarily with the arbitrator except

for the circumstances discussed above, where a court’s authority is expressly

delineated.

       Under a similar set of facts, the Sixth Circuit concluded that “[b]ased upon the

text, structure, and purpose of the FAA, which all foster a speedy and less formal

method of dispute resolution,” courts may not entertain an interlocutory challenge to

an ongoing arbitration proceeding.2 Savers, 748 F.3d at 716. In Savers, the parties

       2
        The Savers court analyzed the dispute under the Michigan Arbitration Act, but noted that
the Michigan laws were “‘almost identical to the FAA in all relevant respects.’” Savers, 748 F.3d

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Burgess v. Lithia Motors, Inc., No. 98083-7

completed an arbitration hearing and the arbitration panel issued an “interim final

award” that resolved liability issues but did not calculate or issue a final damages

award. One of the parties requested that the court stay the arbitration proceedings

and challenged the fundamental fairness of the proceeding, including whether the

arbitrators exceeded their authority, displayed impartiality, and violated ex parte

prohibitions. The trial court framed the issue as a breach of contract dispute and

ruled on the matter, enjoining the ongoing arbitration proceedings.

       The Savers court determined that the language of the FAA contemplated two

stages where courts are authorized to review disputes regarding arbitration

proceedings. First, sections 2, 3, and 4 of the FAA authorize courts to decide

“gateway disputes” regarding the validity or applicability of arbitration agreements.

Section 2 of the FAA “preserves ‘generally applicable contract defenses’ to

arbitration agreements” and allows courts to rescind or invalidate arbitration

contracts where the contract contains an underlying defect. Savers, 748 F.3d at 719;

see 9 U.S.C. § 2. Once the court determines a valid arbitration agreement exists, the

court must enforce it. The following sections, sections 3 and 4 of the FAA, authorize

courts to stay trial and order the parties to proceed with arbitration per the terms of

their binding agreement. 9 U.S.C. §§ 3-4.

at 716 (quoting Uhl v. Komatsu Forklift Co., 512 F.3d 294, 303 (6th Cir. 2008)). Accordingly, the
court relied on cases applying the FAA and resolved the case by interpreting the FAA.

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Burgess v. Lithia Motors, Inc., No. 98083-7

       Second, at the conclusion of arbitration proceedings, courts may review the

final arbitration award. Section 9 of the FAA allows parties to seek an order from the

court to confirm the arbitration award. Sections 10 and 11 of the FAA define the

limited circumstances where courts may vacate, modify, or correct an arbitration

award.

       In evaluating these provisions, the Savers court found it significant that the

FAA is silent regarding judicial review between gateway disputes and review of the

final award. It recognized that other circuit courts have interpreted this silence as

precluding interlocutory review. Savers, 748 F.3d at 717-18 (citing Blue Cross, 671

F.3d at 638; Gulf, 304 F.3d at 488; Hooters of Am., Inc. v. Phillips, 173 F.3d 933,

941 (4th Cir. 1999); LaPrade v. Kidder Peabody & Co., 330 U.S. App. D.C. 386,

146 F.3d 899, 903 (1988); Michaels, 624 F.2d at 414). The Savers court concluded

that under the FAA’s framework, the trial court is not authorized to intervene in the

ongoing arbitration proceedings between resolution of gateway disputes and review

of the final arbitration award. We agree.

       Burgess argues that judicial relief for a breach of the agreement is warranted

under the language of section 2 of the FAA. Section 2 of the FAA states, “[A]n

agreement in writing to submit to arbitration an existing controversy arising out of

such a contract, transaction, or refusal, shall be valid, irrevocable, and enforceable,

save upon such grounds as exist at law or in equity for the revocation of any

                                              8
Burgess v. Lithia Motors, Inc., No. 98083-7

contract.” 9 U.S.C. § 2. Burgess contends that section 2 of the FAA authorizes mid-

arbitration breach challenges because rescission is an equitable remedy for a

material breach of contract. This argument misinterprets the import of section 2 of

the FAA.

       The United States Supreme Court has recognized that “[s]ection 2 is a

congressional declaration of a liberal federal policy favoring arbitration agreements,

notwithstanding any state substantive or procedural policies to the contrary. The

effect of the section is to create a body of federal substantive law of arbitrability.”

Moses H. Cone Mem’l Hosp. v. Mercury Constr. Corp., 460 U.S. 1, 24, 103 S. Ct.

927, 74 L. Ed. 2d 765 (1983). Under this provision, courts may determine “gateway

disputes” where the question is whether the parties have submitted a particular

dispute to arbitration. Howsam v. Dean Witter Reynolds, Inc., 537 U.S. 79, 83, 123

S. Ct. 588, 154 L. Ed. 2d 491 (2002). Common gateway disputes concern

enforceability of the agreement, such as unconscionability challenges or disputes

over which parties are bound by the agreement. These are all questions for the judge.

       Burgess cites no case where a court provided relief, let alone rescission, once

arbitration commenced. The Savers court rejected the notion that section 2 of the

FAA authorizes interlocutory judicial review during arbitration proceedings. The

court noted that section 2 exists to place arbitration agreements on the same footing

as any other contract, subjecting the agreements “to rescission or invalidation if

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Burgess v. Lithia Motors, Inc., No. 98083-7

there is a defect in the underlying contract.” Savers, 748 F.3d at 719. However,

“[n]othing in the text or history of the FAA suggests that § 2 was intended to

displace § 10’s limitation on judicial review of non-final awards.” Savers, 748 F.3d

at 720.

       Cases do exist where courts ruled on rescission challenges, but such cases

involve rulings made before arbitration commenced. Burgess relies on Hooters, 173

F.3d at 938-41, to establish that courts may rescind arbitration agreements during

arbitration. In Hooters, the Fourth Circuit permitted judicial inquiry and rescinded

the arbitration agreement. In that case, a party materially breached the agreement by

promulgating unfair and one-sided rules for arbitration when it had a contractual

obligation to draft rules in good faith. The court clarified, “[W]e only reach the

content of the arbitration rules because their promulgation was the duty of one party

under the contract. The material breach of this duty warranting rescission is an issue

of substantive arbitrability and thus is reviewable before arbitration.” Hooters, 173

F.3d at 938-41 (emphasis added) (resolving the challenge on review of a motion to

compel arbitration). The outcome in Hooters is inapplicable here because Burgess is

challenging the agreement during arbitration.

       The Ninth Circuit also reviewed a breach of contract challenge under section

2 of the FAA where an employer initially refused to arbitrate per the terms of its

own arbitration agreement, forcing the employee to file a lawsuit. Brown v.

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Burgess v. Lithia Motors, Inc., No. 98083-7

Dillard’s, Inc., 430 F.3d 1004, 1010 (9th Cir. 2005). There, the employer moved to

compel arbitration, which the court denied. The court held that the employer’s

refusal to arbitrate constituted a breach of the agreement, rendering the agreement

unenforceable. Brown also does not control because in that case, the breach of

contract challenge was raised before—not during—arbitration. Accordingly, we hold

section 2 of the FAA does not authorize the court to resolve a breach of the

arbitration agreement challenge during ongoing arbitration.

       Further, limiting judicial involvement during ongoing arbitration proceedings

is consistent with the underlying intent of the FAA. Arbitration agreements are

contracts that establish the parties’ agreement to resolve their dispute in arbitration,

instead of in court. In AT&T Mobility LLC v. Concepcion, the United States

Supreme Court recognized that the “‘principal purpose’ of the FAA is to ‘ensur[e]

that private arbitration agreements are enforced according to their terms.’” 563 U.S.

333, 344, 131 S. Ct. 1740, 179 L. Ed. 2d 742 (2011) (alteration in original) (quoting

Volt Info. Scis., Inc. v. Bd. of Trustees, 489 U.S. 468, 478, 109 S. Ct. 1248, 103 L.

Ed. 2d 488 (1989)). The FAA provisions afford parties discretion to design

arbitration processes “to allow for efficient, streamlined procedures tailored to the

type of dispute.” AT&T, 563 U.S. at 344. “If parties could take ‘full-bore legal and

evidentiary appeals,’ arbitration would become ‘merely a prelude to a more

cumbersome and time-consuming judicial review process.’” Oxford Health Plans

                                              11
Burgess v. Lithia Motors, Inc., No. 98083-7

LLC v. Sutter, 569 U.S. 564, 568-69, 133 S. Ct. 2064, 186 L. Ed. 2d 113 (2013)

(quoting Hall Street Assocs. v. Mattel, Inc., 552 U.S. 576, 588, 128 S. Ct. 1396, 170

L. Ed. 2d 254 (2008)). Various circuit courts have opined that permitting

interlocutory judicial review prior to the conclusion of arbitration would undermine

the benefits of arbitration. See Savers, 748 F.3d at 718 (citing the Seventh, Fifth, and

Second Circuits). If judicial review were allowed, the trial court would sit in an

appellate capacity regarding any arbitral decision, resulting in significant delays and

increased costs for parties.

       Once arbitration begins under the FAA, the court’s authority to resolve the

dispute is transferred to the arbitrator. Judicial intervention is generally precluded

during arbitration proceedings. The language, framework, and underlying intent

behind the FAA confirm that generally courts are limited to ruling on gateway

disputes, such as whether the arbitration clause is enforceable, and addressing the

award at the conclusion of arbitration.

       This case falls squarely within the circumstances where judicial review is

precluded under the FAA. Burgess and Lithia are engaged in ongoing arbitration.

Neither party challenged the validity of the arbitration agreement beforehand and the

final arbitration award has not yet been issued. The court may not intervene and

rescind the arbitration agreement when the case is between those two stages.

Burgess essentially challenges the arbitrator’s interlocutory discovery ruling and

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Burgess v. Lithia Motors, Inc., No. 98083-7

asks us to determine whether the ruling comports with the FRCP. This is the very

type of review that the FAA aims to prevent. Because Burgess seeks to terminate

and rescind the ongoing arbitration based on those grounds and an alleged breach of

the arbitration agreement that occurred during arbitration, the superior court is

precluded from reviewing her challenge.

                                       CONCLUSION

       We affirm the superior court’s order, denying Burgess’s motion to terminate

arbitration. When the parties elect to resolve their dispute through arbitration under

the FAA, courts are generally limited to determining enforceability disputes before

arbitration begins and reviewing arbitration awards when arbitration is complete.

The trial court properly determined that it was without authority to resolve Burgess’s

challenge. We affirm and remand for further proceedings consistent with this

opinion.

                                              13