A cert petition, PR’s largest law firm, and the rise of state arbitration laws

Last week, a party filed an opposition brief to a cert petition in a case revealing an interesting dynamic between state and federal arbitration law.  Limited Liability Co. v. Doe, No. 12-855 (U.S. Apr. 30, 2013).

This case involves an employment discrimination dispute between a lawyer, who is a capital member of Puerto Rico’s largest law firm, and the law firm.  The firm’s operating agreement contained an arbitration clause, but the firm’s employee manual and employment contracts did not contain any arbitration provisions.  After a dispute arose regarding discriminatory treatment, the lawyer and law firm attempted to mediate, and then the law firm commenced an arbitration.  Shortly thereafter, the lawyer filed a complaint in state court seeking to enjoin the arbitration so that she could pursue her discrimination claims in litigation, and the law firm asked the court to enforce the arbitration clause in the operating agreement.

The trial court refused to enforce the arbitration clause found in the operating agreement because the lawyer’s discrimination claims arose out of her employment relationship and were covered by the employee manual, which did not contain an arbitration clause.  A Puerto Rican appellate court denied the law firm’s petition for certiorari, but the appellate court noted that the trial court did not err, that the FAA was not applicable to the dispute because interstate commerce was not involved, and arbitration would be inconsistent with Puerto Rican public policy to provide injunctive relief for constitutional violations such as alleged by the lawyer.  (I’m not familiar with Puerto Rican appellate procedure, but those are several findings for an appellate court denying review!)

The law firm is now attempting to get the U.S. Supreme Court to grant review so that the case can proceed confidentially in arbitration instead of a public litigation.  As pointed out in the opposition brief filed last week, there are significant jurisdictional concerns, and I doubt the Supreme Court will grant cert.  Nevertheless, the case illustrates an interesting dynamic between federal and state arbitration law.  Because of the Supreme Court’s cases expanding the reach and preemptive effect of the Federal Arbitration Act (FAA), it seems that parties (and state courts) trying to avoid arbitration and the Supreme Court’s FAA rulings may increasingly argue that an arbitration agreement does not involve interstate commerce and hence state law, not the FAA, applies.