This week at the Ninth: Drug tests and foreign arbitration | Morrison & Foerster LLP – Left Coast Appeals


This week, the Ninth Circuit is considering a challenge to the constitutionality of FAA regulations governing drug and alcohol testing for airline employees, and it wrestles with difficult choice of law questions regarding the agreements. foreign arbitration.

The court finds that FAA regulations requiring drug and alcohol testing for employees in security-sensitive functions are not unconstitutionally vague.

The panel: Justices R. Nelson, Lee and Stein (SDNY), with Judge R. Nelson writing the opinion.

Climax : “Sections 120.35 and 120.39 do not say what to do when an employee is employed simultaneously. But this silence does not condemn the provisions as unconstitutionally vague. Instead, the FAA chose to enact a general rule: If an employee works on an air carrier’s planes, the air carrier must enroll the employee in its testing program.

Background: The Federal Aviation Administration requires drug and alcohol testing for airline employees who perform safety-sensitive functions, such as aircraft maintenance. When an employee begins performing safety-sensitive work for a new employer, that employer must request records of prior testing from previous FAA-regulated employers within 30 days. Employers who violate these regulations face civil penalties.

The petitioner Regency Air is a private charter company. In 2015, Regency hired two people, Ernest Douglas Long and Gary Geis, to do security sensitive work. Long worked for Regency as a volunteer; it was also employed separately by another air carrier (and subject to its test program). Initially, Geis worked for a separate air carrier and was contracted out to Regency. He then joined Regency as a direct employee. Regency did not enroll Long or Geis in its testing program and did not request test results from Geis’ former employer.

In response, the FAA filed an administrative action alleging that Regency had violated the agency’s testing rules. An ALJ imposed $ 11,900 in civil penalties, and the FAA administrator confirmed, increasing the civil penalties to $ 15,600. Regency asked the Ninth Circuit to quash the administrator’s order.

Result: The Ninth Circuit rejected the petition. First, Regency argued that the FAA violated due process because the FAA’s complaint characterized Long as a “contractor,” but the ALJ considered him an “employee.” The Court ruled that “this difference was not relevant from a regulatory point of view”. The Court explained that an agency violates due process when it “modifies[s] halfway theories’ without giving proper notice. Here, “the FAA did not change the theories halfway” because “regardless of Long’s employment status, the FAA’s legal theory remained the same: Regency had to put Long on their program. test but failed to do so ”.

Next, Regency argued that the FAA’s drug and alcohol testing regulations were unconstitutionally vague about Geis’ treatment by Regency, given his concurrent employment with another airline. The Court also rejected these arguments. As he explained, a by-law is not vague when it gives “a person of ordinary intelligence adequate notice of the conduct which he proscribes”. Here, the court concluded that the FAA regulations clearly state that “an employer must test an employee”. Since there was no “concurrent employment exception,” Geir’s work for Regency placed him in the plain text of the regulations even though he was also employed by another company. Further, the regulations made it clear that Regency was required to request Geis’ previous testing records after he became a direct employee of Regency, which she did not.

Finally, Regency challenged the FAA administrator’s decision varying the penalty determination of the ALJ. The Administrator concluded that the ALJ had deviated from FAA policy in mitigating the penalties because Long and Geier were enrolled in the test programs of other air carriers. The Ninth Circuit concluded that Regency had not identified any abuse of discretion in the administrator’s application of the agency’s sanction policy.

The Court held that federal law governs the application of equitable estoppel to arbitration agreements subject to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.

The panel: Judges DW Nelson, Rawlinson and Bea, Judge DW Nelson writing the opinion and Judge Bea dissenting.

Background: Two brothers signed a partnership agreement in India accepting joint ownership of an Indian incense manufacturing company. The agreement contained an arbitration clause covering any dispute between the brothers. After running the business jointly for a while, the two brothers went their separate ways, each starting their own incense-making business. Both companies used the same brand as the original joint company.

Following a dispute, a brother and his company brought an action against the other brother’s company in federal district court, alleging various claims relating to the use of the brand of incense in the United States. . The respondent requested that the case be dismissed or stayed in favor of arbitration. The district court dismissed the request, finding that the defendant was not a party to the agreement containing the arbitration clause and that he was not entitled to invoke the doctrine of equity estoppel to apply this clause. .

The Ninth Circuit initially asserted that the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (or “New York Convention”), which generally governs foreign arbitration agreements, prevents non-parties from performing an agreement. arbitration. But the Supreme Court, in GE Energy Power Conversion France SAS c. Outokumpu Stainless USA, LLC, subsequently came to the opposite conclusion, holding that the Convention did not prohibit “the application of national doctrines of estoppel in equity”. 140 S. Ct. 1637, 1645-46 (2020). The Supreme Court then granted the certificate, quashed and remanded the Ninth Circuit decision.

Result: In pre-trial detention, the Ninth Circuit affirmed again. The majority first turned to the preliminary question of whether Indian law or federal common law governed the application of estoppel in equity. The Court rejected the contention that India’s choice of law provision in the partnership agreement determined the issue, explaining that the agreement itself expressly applied only between brothers who had concluded (and not the defendant company now seeking to invoke it), and that in any event a court does not rely on the contract itself to decide this kind of “threshold” question. On the contrary, the majority felt: “[i]In cases involving the New York Convention, to determine the arbitrability of federal claims by or against non-signatories to an arbitration agreement, we apply “federal substantive law”, for which we rely on ” ordinary contract and agency principles ”. proposal, the majority cited a number of earlier Ninth Circuit and Out-of-Circuit decisions, as well as “the need for uniformity in the application of international arbitration conventions”.

Applying federal standards, the majority concluded that equitable estoppel was not available because, “in fact, the allegations in this case do not involve the agreement which contained the arbitration clause”. The Court explained that equitable estoppel “prevents a party from asserting the benefits of a contract while attempting to avoid the burdens that the contract imposes”, but that here the plaintiffs’ trademark claims were not necessarily “intertwined” with no aspect of the original partnership. agreement.

Judge Beas was dissenting. Rather, he argued that state contract law should govern the issue of equitable estoppel. He reads GE Energy energy conversion to conclude that arbitration agreements governed by the New York Convention should be treated like other arbitration agreements for the purposes of equitable estoppel. And, he argued, under the Federal Arbitration Act (FAA), state law (including state choice-of-law principles, which could compel law enforcement of the jurisdiction in which the agreement was made) generally governed the application of equitable estoppel. . Bea J. disagreed with the majority “that the federal nature of a plaintiff’s claims dictates that federal substantive law governs claims of equitable estoppel”, holding that any decision reaching this conclusion preceded and inconsistent with the FAA Supreme Court’s interpretation to require state law to determine the “validity, revocability and enforceability of contracts generally”. As to the majority concerns that agreements subject to the New York Convention should be treated in a uniform manner, Justice Bea observed that “this whole business is, by definition, governed by parochial doctrines where a certain amount of non- uniformity comes with the territory. On that basis, Judge Bea would have referred the district court to apply the appropriate choice of law rule.

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