Summary
The Second Circuit Court of Appeals has reversed a district court’s judgment that had ordered X Corp. (formerly Twitter, Inc.) to pay disputed arbitration fees in an ongoing arbitration proceeding. The Court held that a party’s refusal to pay ongoing arbitration fees is a procedural issue for the arbitrator or the arbitral body (here, JAMS) to resolve within that proceeding, and is not a “failure, neglect, or refusal… to arbitrate” that a federal district court is empowered to remedy under the Federal Arbitration Act (FAA), 9 U.S.C. § 4.
Why It Matters
This decision significantly limits the role of federal courts in ongoing arbitration disputes, particularly regarding the payment of fees. By classifying fee disputes in ongoing proceedings as procedural matters, the Second Circuit reinforces the principle that courts should not intervene in the internal workings of arbitration, thus preserving the efficiency and autonomy of the arbitral process. For the Petitioners (former employees), this means that if X Corp. refuses to pay fees allocated by the arbitral body (JAMS), the employees’ primary remedy lies with JAMS (which may suspend or terminate the case) or potentially the courthouse after termination, but they cannot use the FAA’s Section 4 to compel the court to order the employer to advance the fees to keep the arbitration running. For X Corp., the ruling confirms that their refusal to pay fees allocated by JAMS, while maintaining a “willing[ness] to arbitrate” on their preferred terms, does not immediately result in a court order compelling the payment.
Case Description
Petitioners, seven former employees of Twitter (now X Corp.), were terminated during mass layoffs following Elon Musk’s acquisition. They filed individual arbitration demands with JAMS (Judicial Arbitration and Mediation Services), as required by their Dispute Resolution Agreements (DRAs). The proceedings came to a halt when a dispute arose over who should pay the ongoing arbitration fees. Twitter argued for a pro-rata (50/50) fee split based on its interpretation of the DRAs, while JAMS asserted that its Minimum Standards of Procedural Fairness applied, requiring Twitter to pay all but the initial case management fees since the DRAs were a condition of employment. When Twitter refused to pay the fees allocated by JAMS, the organization declined to appoint an arbitrator. Twitter insisted the DRAs required the fees dispute itself to be resolved by an appointed arbitrator, not by JAMS.
The Petitioners then sued in the U.S. District Court for the Southern District of New York, asking the court to compel arbitration under 9 U.S.C. § 4, arguing that Twitter’s refusal to pay the fees was a refusal to arbitrate. The district court granted the petition, ordering Twitter to pay the fees. The court reasoned that JAMS was vested with the initial authority to make the procedural fee allocation decision and that compelling Twitter to pay was necessary to enforce the arbitration agreement.
The Second Circuit reversed, holding that a court’s authority under the FAA is narrow, typically covering only fundamental questions like whether the parties agreed to arbitrate at all. Once arbitration has begun, issues like the payment of ongoing fees are “procedural questions” for the arbitrator or the arbitral body to resolve. The Court determined that Twitter’s refusal to abide by JAMS’s fee determination, while still professing a willingness to arbitrate on its own terms, was merely an “intra-arbitration delinquency,” not a wholesale “failure, neglect, or refusal… to arbitrate” that warrants judicial intervention under § 4. Furthermore, the court emphasized that JAMS, as a third-party organization, is not bound by the parties’ agreement and has the discretion to suspend or terminate the case for non-compliance with its rules, including its Minimum Standards. Consequently, the court lacked the authority to order Twitter to pay the fees.
Frazier v. X Corp., — F.4th —-, 2025 WL 2502133 (2nd Cir. 9/2/2025)