On Polemis, Arbitration, Murphy Oil, and Workers’ Compensation

My first-year torts class has arrived at the dreaded “proximate cause” portion of the course. The issue in the cases we are reading is whether a negligent defendant, who is the “cause-in-fact” of harm, should be held liable when a long chain of unforeseeable events produces plaintiff’s harm. You negligently knock over a domino that in turn knocks over a series of dominos culminating (somehow) in the sinking of a cargo ship in a harbor eighteen miles away. You could not foresee the result. Are you liable?  You don’t think so, but the owner of the ship will be disappointed to hear that she can’t recover from you, the “but for” cause of her harm.

One of the most famous of these “proximate cause” cases is Polemis. The facts are straightforward (I’ll omit locations, it was a common law case from the old British Commonwealth). Some workmen, agents of the “lessee” of a ship, knocked a board into the wooden hold of the ship. Unknown to anyone, benzene vapors, effusing from cargo, had been building in the hold. The dislodged board created a spark, which ignited the vapors. The ship was consumed with fire and suffered extensive damage. The lessors/owners of the ship wanted to be compensated for the loss because it arose from the negligence of the lessees. The lessees argued they should not be liable because the damage was not foreseeable. The court disagreed. Because negligence caused the falling board, and the harm produced followed “naturally” (if not foreseeably) from the negligent act, the lessees were “on the hook.” In negligence law, this is known as the “direct cause” test, and many courts have subsequently come to reject it in favor of a standard requiring foreseeability to trigger liability.

My insight this week arose from a deeper appreciation that the underlying facts in Polemis were arbitrated.  The arbitrators decided the case assuming that certain legal rules applied and said they would decide otherwise if a court were to determine that the arbitrators’ understanding of the law had been wrong, which sounds reasonable. If such a case were to be decided under the Federal Arbitration Act (FAA), Polemis would never have breathlessly opined (perhaps to my students’ delight) on the nature of proximate cause. Under the FAA, decisions of arbitrators may be overturned only for fraud, corruption, partiality, misconduct, and “exceeding powers” (which does not include errors of law). Thus, the Polemis court, under the FAA, would have had no occasion to expound on direct cause. Such a discussion would have exceeded the Court’s jurisdictional powers. The Polemis discussion might have been limited to whether the arbitrators were “corrupt.” (One presumes, a short discussion). What would the litigants have known about the state of proximate cause law? Very little. I suspect the judiciary of the day would have been shocked had the claim been made that private arbitration of disputes arising under public laws should be immune from judicial review for errors of law. One can support efficient fact-finding without agreeing to the banishment of judicial review.    

Perhaps we are about to lose all judicial review for errors of law in labor and employment law cases. The Supreme Court, in Murphy Oil, is poised to decide whether arbitration agreements forbidding class actions by employees in any forum, violate private sector labor law’s (the National Labor Relations Act’s) requirement that employers not “interfere with, restrain, or coerce” employee concerted activity undertaken for “mutual aid or protection.” If the Court rules (as I expect it will) against the National Labor Relation Board’s (NLRB’s) view that such arbitration agreements violate labor law, we could see, and soon, significant curtailment of employee class actions of any kind. Indeed, although I do not think the matter is squarely before the Court this time around, I am left wondering whether private arbitration agreements may waive employee access to the NLRB itself. (Waivers of NLRB jurisdiction have been forbidden historically except in extraordinary circumstances. Given the explosive growth of the FAA, and the corresponding proliferation of mandatory arbitration, I am no longer willing to state the principle with confidence.) I have felt for some time that the only thing preventing employers from expanding arbitration agreements (thereby denying judicial review) beyond the roughly 50% of the work force (60 million workers) already covered has been some lingering NLRA questions as to their lawfulness.  Those questions may soon be resolved.

The implications of these developments for workers’ compensation seem clear. If the FAA supersedes even federal labor law (which gave birth to much of arbitration law, after all), I am hard pressed to see why an agreement requiring arbitration of all employment disputes, including workers’ compensation claims, would not be enforceable.  Many of the arguments I can raise easily against this radical proposition have been advanced unsuccessfully in other labor and employment law contexts (including ERISA, by the way), which is why I have begun writing a difficult article on the arbitration and workers' compensation. It will not do to say, “my state would not allow it.” The FAA is federal law. To say that we may soon have an important federalism question upon us is an understatement. Loss of judicial review of workers’ compensation cases is hard to imagine. Loss of a public forum for claims is even harder to contemplate.

Michael C. Duff