Labor & Employment Law Daily No sanction despite employer’s meritless appeal of arbitrator’s decision: ‘incompetence, not malice’
Tuesday, May 12, 2020

No sanction despite employer’s meritless appeal of arbitrator’s decision: ‘incompetence, not malice’

By Brandi O. Brown, J.D.

“There is a time for punishment and a time for grace,” said the appeals court, in denying the employee’s motion to sanction his employer for pursuing a frivolous appeal.

Denying a motion for sanctions filed by an employee whose employer appealed after an arbitrator allowed him to proceed with class arbitration in an FLSA dispute, the Fifth Circuit explained that, while the appeal was “obviously meritless” it could not assume it was done with malice. The court, however, expressed its hope that there would be no “further unnecessary delay” and that the employee would “take some comfort” that it had “warned” the employer about its behavior (Sun Coast Resources, Inc. v. Conrad, May 7, 2020, Ho, J.).

Arbitration surprise. In what was apparently an unanticipated outcome for Sun Coast Resources, an arbitrator ruled in favor of the employee in his quest to pursue claims against the company on behalf of a class of employees. In fact, the employee had “dutifully agreed to arbitrate this dispute,” even though arbitration could be “a weapon for the economically powerful.” After the employee won a clause construction award from the arbitrator allowing him to proceed with class arbitration, the employer challenged the award, first to the district court and then on appeal. The appeal was meritless, the court explained, because it was premised on a theory that was “not only contradicted by the plain language of the arbitration agreement,” but also because the employer forfeited it. It failed to present the issue to the arbitrator or to the district court. Then, on appeal, it denied having forfeited the issue.

Unsuccessful appeal. “And then, to top it all off,” the court noted, the employer filed a motion insisting on oral argument, even after the panel had determined there was no need for it. The employer argued that oral argument was “the norm” and that if the court denied the motion it would be guilty of “cafeteria justice.” The court nevertheless denied the motion. And it denied the appeal.

Incompetence rather than malice. The employee, whom the court acknowledged had “endured unfortunate delay and expense in the enforcement of his rights, and those of his class members,” moved for sanctions under Federal Rule of Appellate Procedure 38. The court denied the motion. While it acknowledged that courts have “broad power” under that rule to issue sanctions for inadvertently or intentionally frivolous and vexatious appeals, it explained that the case for such sanctions “is strongest in matters involving malice, not incompetence.” In this case, the court believed the latter was at play. The employer had argued on appeal that it did not forfeit a particular theory, claiming that it had cited a particular case supporting that theory while at arbitration. However, the record proved that it had cited a different opinion than the one it claimed. Thus, it had forfeited this argument. This led the court to find “incompetence, not malice.”

Grace rather than punishment. While it was possible there was bad faith involved, the court was not willing to speculate and instead resolved the motion on facts and evidence. It noted that it sympathized with the employee, but it concluded that this was a “time for grace, not punishment.”

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