Next at the Supreme Court: Badgerow’s Attempt to Reevaluate FAA Jurisdiction

By Bryanna Rainwater

The U.S. Supreme Court has set the oral argument for Nov. 2 in Badgerow v. Walters, No. 20-1143, now the sole remaining arbitration case on the docket for the new term beginning next month.

The issue the nation’s top Court will examine is whether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the Federal Arbitration Act when the only basis for jurisdiction is a dispute regarding a federal question.

Section 9 deals with confirming an award, and Section 10 provides the limited grounds that can overturn an award and thereby defeat a move to confirm.

Last week, the Court removed the first arbitration case it had taken for the term from its argument schedule and dismissed the case after a party request.  The case, Servotronics Inc. v. Rolls-Royce PLC, et al., Docket No. 20-794, would have examined the parameters of the discretion granted to district courts under 28 U.S.C. §1782(a) to render assistance in gathering evidence for use in “a foreign or international tribunal” by determining whether the statute includes private commercial arbitral tribunals.

For more details on the dismissal on this blog, see Bryanna Rainwater, “Case Dismissed: Supreme Court Lightens Its Arbitration Load as Servotronics Is Removed from 2021-22 Docket,” CPR Speaks (Sept. 8) (available at https://bit.ly/39oFdAx).

The Fifth U.S. Circuit Court of Appeals in Badgerow affirmed the district court’s decision that exercised subject-matter jurisdiction over the plaintiff’s petition to vacate an arbitral award stemming from an employment dispute, denying remand of the issue. Badgerow v. Walters, 975 F.3d 469 (5th Cir. Sept. 15, 2020) (available at https://bit.ly/394xUh3).

Petitioner Denise Badgerow–a former employee of REJ Properties Inc., a Louisiana-based financial services firm that was a unit of Ameriprise Financial Services Inc.–signed an agreement to arbitrate any employment disputes with Ameriprise and any of its affiliates.

She was terminated and initiated arbitration against company officials alleging gender discrimination and other Title VII and equal pay claims before a Financial Industry Regulatory Authority panel. Ameriprise successfully moved to compel arbitration in a separate federal suit and Badgerow added a declaratory judgment claim against Ameriprise to the FINRA arbitration. 

Badgerow sought damages against the REJ principals for tortious interference of contract for a violation of Louisiana’s “whistleblower” law. Id. at 471. The FINRA panel dismissed all of Badgerow’s claims against the principals and Ameriprise with prejudice.

In May 2019, Badgerow brought a new Louisiana state court action to vacate the FINRA award that dismissed her complaints, alleging fraud by the principals against the FINRA arbitrators. The principals removed the case to Louisiana’s Eastern U.S. District Court. Badgerow filed a motion to remand, asserting the lack of federal subject-matter jurisdiction.

The district court held that there was federal subject matter jurisdiction, and Badgerow appealed the denial of her motion to remand to state court.

The Fifth Circuit relied upon the approach in Vaden v. Discover Bank, in which the Supreme Court adopted the “look through” approach to determining federal jurisdiction in actions that compel arbitration under FAA Section 4. Vaden v. Discover Bank, 556 U.S. 49 (2009) (available at https://bit.ly/3Ca42MA). Under this approach, a federal court should “look through” the Federal Arbitration Act claims to the “substantive controversy” to determine if they could have been brought in federal court.

Badgerow disagreed with the district court’s four-step analysis for conveying federal jurisdiction in her case because she did not include Ameriprise in her state-court action, but the district court rejected this argument, holding, “’Badgerow cannot deprive the Court of subject matter jurisdiction over an action to vacate the award by stripping off a single state law claim.’” Id. at 474 (quoting the district court opinion).

The Fifth Circuit noted that a close reading of Vaden vindicated the district court’s reasoning. Since Vaden’s rule is “if, save for” the arbitration agreement, a claim could be held in federal court, then there is federal jurisdiction.

The Fifth Circuit agreed that this analysis does not fail in an action to vacate the award by “stripping off a single state law claim.” Id. The court decided that since Badgerow’s claims “all arose from the same common nucleus of operative fact” that “the district court correctly found that the federal claim against Ameriprise in the FINRA arbitration proceeding meant that there was federal subject-matter jurisdiction over the removed petition to vacate the FINRA arbitration dismissal award.” Id.

The case now stands before the Supreme Court, which granted cert on May 17.

In her petition, Badgerow lays out the clear question of “whether Vaden’s ‘look through’ approach applies to motions to enforce or vacate arbitration awards under [FAA] Sections 9 and 10.”

The petitioner noted that there is disagreement among district judges regarding the Vaden analysis as it relates to FAA enforcement of arbitral awards, and that the Fifth Circuit itself divided 2-1 on the Vaden look-through approach for motions to confirm in a case addressed while Badgerow was pending. Quezada v. Bechtel OG & C Constr. Servs. Inc., 946 F.3d 837 (5th Cir. 2020) (available at https://bit.ly/3lrMZ1X).

The cert petition says that the divisiveness between the courts and the confusion surrounding the FAA language are reasons to question the Fifth Circuit’s decision in asking the Supreme Court to clarify whether Vaden’s approach to federal jurisdiction extends from FAA Section 4 to Sections 9 and 10.

While the steady stream of Supreme Court arbitration cases has generated a concurrent steady stream of regularly appearing parties as amicus curiae, oddly, at this writing, less than two months ahead of arguments, no friend-of-the-court briefs have been filed either on the successful cert petition or the case itself. The case documents, including the party briefs and any future amicus filings, can be found on the Supreme Court docket page at https://bit.ly/3zfSqps.

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The author, a second-year student at Brooklyn Law School, is a 2021 CPR Fall Intern.

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Case Dismissed: Supreme Court Lightens Its Arbitration Load as Servotronics Is Removed from 2021-22 Docket

By Bryanna Rainwater

The U.S. Supreme Court has dismissed the first arbitration case it had accepted for this fall’s term.

Servotronics Inc. v. Rolls-Royce PLC, et al., Docket No. 20-794, has been officially removed from the Supreme Court’s docket as of today, with the Oct. 5 opening week oral argument wiped off the schedule.  You can see the Court’s order in the docket here.

Petitioner Servotronics’ counsel, issued a Sept. 8 letter to the Court stating it would file a formal dismissal request “within the next few days” per Rule 46 of the Rules of the Court.

The dismissal follows the completion of arbitration in London this summer. The U.S. Solicitor General’s office had requested and been granted permission to participate in the oral arguments.

The issue that was awaiting the Supreme Court was whether the discretion granted to district courts in 28 U.S.C. §1782(a) to render assistance in gathering evidence for use in “a foreign or international tribunal” encompasses private commercial arbitral tribunals, as the Fourth and Sixth U.S. Circuit Courts of Appeal have held, or excludes such tribunals without expressing an exclusionary intent, as the Second, Fifth, and, in the case below, the Seventh Circuit, have held.  See Servotronics Inc. v. Rolls Royce PLC, No. 19-1847 (7th Cir. Sept. 22, 2020) (available at https://bit.ly/3dpNyF4).   

Since the Court has declined to hear this case, the future of international private commercial arbitration discovery is still unclear, with pending cases in federal circuit courts.

For more background on the Servotronics history, please see CPR’s coverage:

  1. Cai Phillips-Jones, “United States Submits Amicus Brief in Servotronics International Arbitration Supreme Court Case,” CPR Speaks (July 8) (available here).
  2. Amy Foust, “The Next Arbitration Matter: Supreme Court Agrees to Decide Extent of Foreign Tribunal Evidence Powers,” (March 22) (available here).
  3. “YouTube Analysis: What Happens Next with the 3/22 Servotronics Cert Grant on Foreign Arbitration Evidence,” CPR Speaks (March 22) (available here).
  4. “CPR Files Amicus Brief Asking U.S. Supreme Court to Tackle Foreign Discovery for Arbitration,” CPR Speaks (Jan. 6) (available here).
  5. John B. Pinney, “Will the Supreme Court Take Up Allowing Discovery Under Section 1782 for Private International Arbitrations?” 38 Alternatives 103 (July/August 2020) (available at https://bit.ly/38PDOSk).
  6. John B. Pinney, “Update: The Section 1782 Conflict Intensifies as the International Arbitration Issue Goes to the Supreme Court,” 38 Alternatives 125 (September 2020) (available at https://bit.ly/3tbgFCX).

The Court recently scheduled its second–and suddenly, sole–arbitration matter for the new term.  Badgerow v. Walters, No. 20-1143, will discuss “[w]hether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the Federal Arbitration Act when the only basis for jurisdiction is that the underlying dispute involved a federal question.”  It will be argued on Nov. 2.

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The author, a second-year student at Brooklyn Law School, is a 2021 CPR Fall Intern.

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‘Understanding’ Mediator Gary Friedman on His Adventure in Politics

By Mylene Chan

Earlier this month, Gary Friedman, co-founder of the Center for Understanding in Conflict, of Santa Rosa, Calif., conducted a video breakfast roundtable titled “Inside Out: Confessions of a Mediator in Politics,” hosted by the Association for Conflict Resolution-Greater New York Chapter and the City University of New York Dispute Resolution Center at John Jay College.

Friedman’s talk focused on events described in a Politico article, “‘I Got Obama’d’: A California conflict-resolution guru entered politics thinking he could fix it. Instead, it brought a punishing counterattack.” The May 1 article, an excerpt from “High Conflict,” a book by Amanda Ripley published in June by Simon & Schuster (see https://bit.ly/3yT3ee0), can be found at https://politi.co/3iOX9tf.

The excerpt and book recount Friedman’s political term “on his local Community Services District Board of Directors, a five-member council in charge of area roads and water management,” in Muir Beach, Calif., from 2016 to 2021.

Friedman’s brief political life exemplifies that even experienced mediators can be easily pulled into an adversarial mode, away from peace-making. But, according to Friedman, if one refocuses, the Understanding Model of mediation, which Friedman developed with his Center for Understanding in Conflict partner Jack Himmelstein, can help resolve conflicts.

For more than 40 years, Friedman has lived in Muir Beach, which is governed by the five-member board.  Hoping to bring “reinvigorate democracy” in his hometown, according to the book excerpt, Friedman ran for office in 2015 and was elected. 

Unfortunately, during Friedman’s governance as board president, he violated principles of his Understanding Model. Friedman explained in his talk that he was blinded by power and the conflicts that were directly targeted him. As a result, he said his litigator inner-self emerged–he was a trial lawyer before turning to mediation–and he became defensive, combative, and aggressive.

Friedman said he ended up creating more polarization and alienated his community in what he coined his “period of derangement.”

Understanding, according to Friedman, is an underused power that has the potential to help people make better solutions. The loop of understanding, however, does not work if it is disingenuous. Friedman intimated that while governing in his village, he used understanding as lip service so that he could soften others in attempts to convince them that they were wrong. 

Friedman said that his Understanding Model is based on putting the responsibility on the disputants–not the professional–to solve the problem. This means believing in people and giving them power because ultimately it is the disputants who know best about what solutions will work.

But when Friedman acted as the board president, he said he took power from his constituents instead of giving power. Friedman did not believe in the people’s ability to solve problems themselves; Friedman said he felt he knew best.

Mediators practicing the Understanding Model are expected to proceed with the disputants by agreement on how to work together. By contrast, when Friedman was in charge, he explained that he made numerous unilateral decisions that angered his constituents or fellow board members.

For example, he eliminated the tradition of having snacks and socializing time at board meetings.  Even when constituents vehemently objected, he limited each person to three minutes of speaking time and prohibited anyone from raising issues not on the agenda.

Furthermore, in a town of just 250 people, Friedman established 23 subcommittees that were poorly attended. Friedman’s critics complained that he was arrogant, power hungry, and Napoleon-like.

Two years into a five-year term, Friedman was removed as board president. He said about himself, “I felt actually humiliated by my behavior . . . and how I became untethered.”  When Friedman saw how far he had fallen from his own ideals, he said he started to probe internally what was truly important to him and why.  He said his mediator “inner-self”–which depends on self-awareness–re-emerged.

Realizing that what he wanted was to help his neighbors understand each other and to make conflicts useful, Friedman began voting for his opposition intentionally to undo the conflicts he created.  He also blurred the lines between the old board members and his allies on the new board through voting on both sides. Most important, he said, he made efforts to genuinely connect and understand his constituents, one by one.

Before Friedman stepped down from the board, he reconciled with his community and accomplished some political agendas he set out to do initially.  Roads were repaired, the water rate was raised, and the tone of the meetings improved.

At the roundtable, Friedman noted that the Politico book excerpt has gotten a lot of attention. “I’ve been hearing from thousands of people that came out of the woodwork all over the world . . . and I think that my failure as a politician is really meant to encourage all of us, because I not only failed but I survived the failure.”

In the end, Friedman said he repaired the conflicts he created using the Understanding Model.

The Aug. 5 ACR/John Jay breakfast roundtable is available on video at https://bit.ly/3sku9Na. For another view of the event, see John Lande, “More on Gary Friedman’s Not-So-Excellent Adventure in Politics,” Indisputably.org (Aug. 8) (available at https://bit.ly/3k1EsSC).  

For more on the Understanding Model, see Mylene Chan, “Highlights from the June Session of the Harvard Law School Program on Negotiation ‘Mediating Disputes’ Training,” CPR Speaks (June 24) (available at https://bit.ly/37SaTx2).

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The author, an LLM candidate at Pepperdine University Caruso School of Law’s Straus Institute for Dispute Resolution, in Malibu, Calif., is a 2021 CPR Summer Intern.

[END]

Highlights from Last Month’s Harvard Program on Negotiation’s Advanced Mediation Workshop on Mediating Complex Disputes

By Mylene Chan

The Harvard Law School Program on Negotiation conducted its Advanced Mediation Workshop: Mediating Complex Disputes from July 26-30. Forty-eight participants from diverse mediation practices around the world gathered to attend the July sessions taught by faculty members David Hoffman, Lawrence Susskind, Susan Podziba, Samuel Dinnar, and Audrey Lee.

The program was divided into two parts: (1) a focus on two-party complex mediations with potential court filings, and (2) a focus on multiparty, multi-issue public dispute mediation.  

During the first two days, the faculty addressed the main features of two-party complex mediations, such as ethics, breaking impasses, the use of caucuses versus joint sessions, implicit bias, and the art of co-mediation. Many of the concepts are laid out in “Mediation: A Practice Guide for Mediators, Lawyers, and Other Professionals,” by David A. Hoffman and other contributors (Massachusetts Continuing Legal Education, 2013).

The mediation strategy and process design espoused by this faculty is structured on Roger Fisher’s interest-based model, as outlined in the classic “Getting to Yes: Negotiating Agreement Without Giving In,” by Roger Fisher, William Ury, and Bruce Patton (Penguin Books 2011 (originally published in 1981)). The basic principles call for separating people from the problem and shifting from interests from positions. 

Their theory is also heavily influenced by the framework of the core concerns explored in “Beyond Reason: Using Emotions as You Negotiate,” by Roger Fisher and Daniel Shapiro (Penguin Books 2005). Core concerns–or emotional interests–are human wants that underlie every negotiation. They include autonomy, appreciation, affiliation, status, and role.

Faculty member Audrey Lee explained that exploring disputants’ core concerns allows mediators to shift the focus to disputants’ real interests and to promote better understanding, thus facilitating agreement.

During the first two days, the workshop participants practiced co-mediating in two cases involving commercial contracts, intellectual property, and employment disputes.  Many participants commented that they had never co-mediated, and that they tended to be more driven by positions than interests.  Some added that they struggled to be creative in devising ways to expand the pie, noting that they had to turn off their combative litigator instincts and the urge to render advice and advocate.

The program then transitioned from two-party matters to multiparty, multi-issue public disputes. Lawrence Susskind, a leader in the development of public dispute mediation, introduced these complex public disputes, explaining that their form and substance shift.  The number of parties can range from as few as 30 to beyond 100, many of whom may be unfamiliar with professional facilitation, and with more parties potentially joining over the course of the dispute resolution process.

An additional challenge, Susskind explained, is that the parties may represent stakeholder groups without full empowerment to speak on the groups’ behalf.

Also, the agenda is likely to keep changing because very often parties continue to reshape or argue about it.

Furthermore, scientific and technical uncertainty and disagreement abound.  Examples of these amorphous dispute resolution settings are global treaty negotiations, budgetary negotiations, environmental policy disputes, and public dialogues on issues such as police conduct. A deeper exploration of these issues can be found in “Breaking Robert’s Rules: The New Way to Run Your Meeting, Build Consensus and Get Results,” by Lawrence E. Susskind and Jeffrey L. Cruikshank (Oxford University Press 2006).

Susan Podziba then elaborated on the process she uses in mediating these complex cases. She has worked with the United Nations and individual national governments to resolve intractable disputes with widespread and long-lasting ramifications. She said she begins with an assessment by reading all the publicly available information, followed by discussions with people who have lived through the conflict.

In many cases, parties have not been identified, and therefore, Podziba said she starts by talking to the parties who are obvious, and from those conversations identifying additional parties that should be participating.

Once the first phase is concluded,  Podziba develops the process design, aimed at enabling diverse groups to work together to resolve a complex conflict. The process design typically includes constructing five basic building blocks: (1) the product (the form of agreement such as joint statements or MOUs) that will result from the negotiations; (2) the complementary goals that need to be achieved before agreement can be reached; (3) outreach to and consultations with outside experts; (4) trusted information (that is, information from objective sources that can correct biases); and (5) ground rules and logistics relating to the negotiation session itself.  For more details, see “Civic Fusion: Mediating Polarized Public Disputes,” by Susan L. Podziba (ABA Publishing 2012).

The faculty prepared three complex public policy dispute mediation role-play sessions for the class. The first one concerned the reconstruction of the World Trade Center after 9/11, involving many public parties such as the New York state government, New York City, and the families of the deceased. Many participants who played the role of the families said that they felt the emotions.

After the day concluded, the faculty arranged for a guided group screening of a training video co-produced by CPR, publisher of CPR Speaks, and Harvard PON on the World Trade Center reconstruction. Details are available on Lawrence Susskind’s website, here.

The workshop participants also mediated the ethical dilemmas surrounding water shutoffs in older U.S. cities. Susskind said that his Massachusetts Institute of Technology research team–he is MIT’s Ford Professor of Urban and Environmental Planning–has mapped where U.S. local governments have shut off water supplies. 

After the role-play, many participants inquired about how to gain experience in public policy mediation. Susskind responded that public policy mediators are paid at an hourly rate and discussed the Consensus Building Institute, an international public policy mediation center Susskind founded in 1993.

On the final day of the workshop, Susan Podziba introduced the conflict over the construction of the Thirty Meter Telescope on sacred lands on Mauna Kea in Hawaii–a massive conflict involving foreign countries and many academic institutions.  After the simulation, many participants reflected on Podziba’s systematic process design and said that they will incorporate such a design into their mediation practice.

David Hoffman, who is credited with bringing collaborative law to the commercial sector via the firm he founded, the Boston Law Collaborative, ended by urging the attendees to consider being peacemakers:

[T]he opportunities to impact out there in the world exist in every one of those cases, when you think about the infinite dimensions of the human heart, and the opportunity we have when we enter the sacred space of people’s conflicts to heal those wounded hearts.  We have a mandate for mediation on a very deep and grand scale.

This Harvard workshop offered veteran mediators an opportunity to have experts critique their trade and to gain exposure to some of the cutting-edge theories and practices of mediation taught at Harvard Law School and its Program on Negotiation. 

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The author, an LLM candidate at Pepperdine University Caruso School of Law’s Straus Institute for Dispute Resolution, in Malibu, Calif., is a 2021 CPR Summer Intern. She participated in the Harvard program detailed in this post.

[END]

UNCITRAL Adopts Expedited Arbitration Rules

By Mylene Chan

This is the third part of a series of CPR Speaks posts reporting on the United Nations Commission on International Trade Law’s 54th session where the commission adopted legislative and non-legislative texts relating to alternative dispute resolution. 

At the three-week session concluding July 16, the commission adopted the UNCITRAL Expedited Arbitration Rules and the Explanatory Notes to the UNCITRAL Expedited Rules. These rules and notes complement and are intended to be read together with UNCITRAL’s well-known arbitration rules, which are for resolving international disputes and applicable both in administered arbitrations under the auspices of an arbitral institution, as well as in ad hoc arbitrations.

The UNCITRAL Arbitration Rules were originally developed as an alternative to other major rule systems. UNCITRAL’s innovative rules were initially viewed with skepticism, but over time, they have been frequently used in investment arbitrations, commercial arbitrations, arbitrations between states, and between states and individuals, such as for the Iran-U.S. Claims Tribunals and several bilateral investment treaties. Latham & Watkins Guide to International Arbitration (2019) (available at https://bit.ly/2VeZKU8).

The UNCITRAL Arbitration Rules have gone through three versions, in 1976, 2010 (revised to meet the needs of modern business including improvements to procedural efficiency, inclusion of provisions on multi-party arbitration and the development of rules on interim measures; available at https://bit.ly/3i7UrPq), and 2013 (incorporated rules on transparency for investment arbitrations based on treaties; available at https://bit.ly/2UZMEKH). See general background on the rules from UNCITRAL at https://bit.ly/3l6RyjD.

In 2018, UNCITRAL mandated Working Group II to explore ways to improve the efficiency of the arbitral proceedings through streamlining and simplifying procedures, resulting in the drafting of the UNCITRAL Expedited Arbitration Rules. The goal is to reach a final dispute resolution in a cost- and time-effective manner while ensuring due process and fair treatment for the disputants. (See https://undocs.org/en/A/CN.9/934 for the 2018 statement on expedited rules.)

For coverage of the early drafting process of the UNCITRAL Expedited Arbitration Rules, see Piotr Wójtowicz & Franco Gevaerd, “How UNCITRAL’s Working Group II on Arbitration Is Analyzing the Field to Help Expedited Processes” 37 Alternatives 90 (June 2019) (available at https://bit.ly/377Nfwg), and Piotr Wójtowicz & Franco Gevaerd,  “The Framework: The U.N.’s Working Group II Debates New Expedited Arbitration Rules,” 37 Alternatives 99 (July/August 2019) (available at https://bit.ly/3l5OLqS).

Special features in the UNCITRAL expedited arbitration rules include the following:

  • Disputes under the expedited procedures shall be settled in accordance with the UNCITRAL Arbitration Rules as modified by the expedited rules.
  • The expedited rules shall apply only with express consent by the disputants.
  • To facilitate speedy constitution of the tribunal, the claimant must include, with its notice of arbitration, the proposal of an appointment authority and the arbitrator. The notice of arbitration constitutes the claimant’s statement of claim. The respondent then has 15 days to file a response to the notice of arbitration. By contrast, under UNCITRAL Arbitration Rules, the time to respond is 30 days from the receipt of the notice of arbitration.
  • When the disputants cannot agree on an appointing authority, any disputant can request that the Permanent Court of Arbitration Secretary-General designate the appointing authority or serve as appointing authority. The PCA Secretary-General has discretion to decline serving as appointing authority and designate another authority if it deems it more appropriate. In this way, the UNCITRAL Expedited Rules have deviated from the default two-step designation/appointment procedure found in the non-expedited UNCITRAL Arbitration Rules.
  • The tribunal has discretion in shaping the proceedings, including extending or abridging timeframes (except for award issuance, as discussed in the bullet below) and determining whether hearings will be held or evidence taken.  This discretion represents an expansion of the discretion contained in the UNCITRAL Arbitration Rules.
  • The time period for rendering the award employs a bifurcated approach. If the tribunal considers that it is at risk of not rendering an award within nine months, it shall propose a final extended time limit. If all disputants agree, the extension is considered adopted.  If a party objects to the extension, however, any party may make a request that the UNCITRAL Expedited Rules no longer apply to the arbitration. After hearing the disputants, the tribunal may then decide that it will instead conduct the proceedings in accordance with the UNCITRAL Arbitration Rules, which do not contain the time limits.

The most contentious issue was the last bullet point above regarding the time period for rendering the award. Working Group II spent more than six hours debating on this point during the 54th session, focusing on how to balance the policy interest of promoting a truly expedited process with the goal of ensuring that the result of that process would be enforceable through the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, better known as the New York Convention.

At one point, the U.S. delegation objected vehemently that “[u]sing this approach, as the default in the rules, creates a very concerning precedent for an uncontrolled instrument in our delegation’s experience.  . . . That is why we have drafted the compromise language that . . . seeks to bridge the gap between delegations like ours, who are very concerned about adopting a system that will likely produce unknowable awards, and those delegations who primarily are concerned that without a hard stop at nine months, the rules will enable arbitrators who were not very diligent, or who simply procrastinated to continue to take extensions.”

There were more concerns about protecting those with lesser means and bargaining power:

  • The U.S. delegation noted, “We think that given that these rules may be used by unsophisticated parties because they are expedited, . . . one of the goals is to reach out to parties who might be otherwise deterred from pursuing arbitration because of the cost.  . . .”
  • The Israel delegation point out that “[t]here could be concerns of parties with weaker bargaining powers that would have to be essentially compelled to agree to this.  . . .”

While the debate was heated, ultimately the member states drafted an innovative approach to reach a consensus. 

The UNCITRAL Expedited Arbitration Rules will appear together with the explanatory notes toward the end of the year as an appendix to the UNCITRAL Arbitration Rules.  In the fall, Working Group II will deliberate on rules about early dismissal of frivolous claims that will require modifications to the UNCITRAL Arbitration Rules. Working Group II will post the final rules, and currently has the drafts, here.

In addition, UNCITRAL is contemplating developing a new framework for adjudication. commonly known as dispute resolution boards, to complement the UNCITRAL Arbitration Rules. There has been a recurring expression of interest within UNCITRAL member states in the principle of rapid decision common to adjudication in construction projects. The U.S. delegation noted that it hoped that this principle can be adapted to expedite the resolution of disputes in other long-term contracts, or at least to mitigate the impact of those disputes.

UNCITRAL expects to conduct colloquiums to discuss adjudication next spring. With the adoption of the expedited rules, UNCITRAL is taking steps to expand the use of arbitration as a method of dispute resolution available to a wider range of parties.

Thomas W. Walsh, special counsel based in the New York office of Freshfields, who in his arbitration work focuses on UNCITRAL matters and worked on an early draft of the UNCITRAL Expedited Rules, said that the rules “are a welcome example of the arbitration community responding to the needs of the businesses that use arbitration. If parties have a commercial need to expedite the resolution of their dispute, the rules offer a thoughtful, ready-made procedure that they can select to meet that commercial need.”

The UNCITRAL Expedited Rules eliminate many of the obstacles that made arbitration costly and overly time-consuming, and the role of UNCITRAL as a global trend-setter on arbitration means that these new provisions are likely to be used as models worldwide.

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The author, an LLM candidate at Yeshiva University’s Benjamin N. Cardozo School of Law in New York, has covered UNCITRAL’s 54th Session proceedings for CPR Speaks as a 2021 CPR Summer Intern. Her articles can be found using the search box on the upper right of this page.

[END]

Second Circuit Affirms on Sending a Contract’s Arbitrability to a Court, Not a Tribunal

By Mark Kantor 

It has become common to report on federal circuit court decisions deferring “who decides” gateway arbitrability issues to arbitrators based on the adoption by contract parties of a set of arbitration rules containing a “competence-competence” clause, as well as the U.S. Supreme Court consistently declining to take on that question. 

On Friday, though, the Second U.S. Circuit Court of Appeals decided that the existence of such a clause in the American Arbitration Association Commercial Arbitration Rules (here, R-7(a)) was not per se sufficient to satisfy the Supreme Court’s “clear and unmistakable” gateway test from First Options of Chicago Inc. v. Kaplan, 514 U.S. 938 (1995) (available at http://bit.ly/2WEXGnF).

 In DDK Hotels LLC et al v. Williams-Sonoma Inc., et al, No. 20-2748-cv (2d Cir. July 23) (available at https://bit.ly/3zIUIhv), a unanimous three-judge appeals panel concluded that the gateway question of whether a dispute about “prevailing party” fees was arbitrable under a joint venture agreement was “one for the district court, not the arbitrator, to decide.” 

The manner in which the U.S. District Court, and then the Second Circuit, reached this conclusion is an interesting approach toward limiting the impact of the rulings in all but one of the circuits (including the Second Circuit) that a “competence-competence” clause in arbitration rules–a provision that the tribunal decides its own jurisdiction as to whether a case is arbitrated–constitutes a “clear and unmistakable” showing that the contract parties intended for gateway arbitrability issues to be decided by the arbitral tribunal.

The core U.S. Federal Arbitration Act  (at 9 U.S.C. § 1, et seq.) test for allocating gateway issues between courts and arbitral tribunals is well known.  Gateway issues are to be decided by the courts unless there is clear and unmistakable evidence that the contracting parties intended to allocate the gateway issue to the arbitrator.  Ordinary contract law principles apply to that inquiry.

Writing for the unanimous panel, Second Circuit Senior Judge Robert D. Sack noted, “Courts should not assume that the parties agreed to arbitrate arbitrability unless there is ‘clea[r] and unmistakabl[e]’ evidence that they did so. First Options, 514 U.S. at 944 (alterations in original) (quoting AT & T Techs. Inc. v. Commc’ns Workers of Am., 475 U.S. 643, 649 (1986)).  . . .  We ‘apply ordinary state-law principles that govern the formation of contracts’ in conducting this inquiry into the parties’ intent. First Options, 514 U.S. at 944.”

Like every other circuit court that has ruled on the question, the Second Circuit has held that “[w]here the parties explicitly incorporate procedural rules that empower an arbitrator to decide issues of arbitrability, that incorporation may serve ‘as clear and unmistakable evidence of the parties’ intent to delegate arbitrability to an arbitrator.’” Citing Contec Corp. v. Remote Sol. Co., 398 F.3d 205, 208 (2d Cir. 2005).

The DDK Hotels appeals court, however, went on to point out a limiting aspect of those decisions: “[C]ontext matters,” such that incorporation of such rules does not per se show satisfaction with the First Options “clear and unmistakable” standard if other aspects of the parties’ agreement create ambiguity as to the requisite intent. Specifically, opinion states,

We have also advised, however, that in evaluating the import of incorporation of the AAA Rules (or analogous rules) into an arbitration agreement, context matters. 

Incorporation of such rules into an arbitration agreement does not, per se, demonstrate clear and unmistakable evidence of the parties’ intent to delegate threshold questions of arbitrability to the arbitrator where other aspects of the contract create ambiguity as to the parties’ intent.

The appellate panel stated that, “where the arbitration agreement is broad and expresses the intent to arbitrate all aspects of all disputes,” then the First Options test will be met to allocate issues of arbitrability to an arbitrator.  If, however, “the arbitration agreement is narrower, vague, or contains exclusionary language” that the parties intended to arbitrate “only a limited subset of disputes,” then “incorporation of rules that empower an arbitrator to decide issues of arbitrability, standing alone, does not suffice to establish the requisite clear and unmistakable inference of intent to arbitrate arbitrability.” (Emphasis added.)  

Senior Circuit Judge Sack pointed to a Second Circuit ruling in NASDAQ OMX Grp. Inc. v. UBS Sec. LLC, 770 F.3d 1010, 1031 (2d Cir. 2014), to reinforce this conclusion: “[W]here a broad arbitration clause is subject to a qualifying provision that at least arguably covers the present dispute . . . we have identified ambiguity as to the parties’ intent to have questions of arbitrability . . . decided by an arbitrator.”

The Court of Appeals then applied these principles to the joint venture contract at issue in DDK Hotels.  Section 16(b) of the joint venture agreement limited arbitration solely to “Disputed Matters”:

“(b) Arbitration. The parties unconditionally and irrevocably agree that, with the exception of injunctive relief as provided herein, and except as provided in Section 16(c), all Disputed Matters that are not resolved pursuant to the mediation process provided in Section 16(a) may be submitted by either Member to binding arbitration administered by the American Arbitration Association (“AAA”) for resolution in accordance with the Commercial Arbitration Rules and Mediation Procedures of the AAA then in effect.  . . .” (Emphasis added by Court of Appeals.)”

The term “Disputed Matters” was defined in the JV agreement to cover corporate governance “deadlock” issues requiring Board or LLC Member approval or on which the Board was unable to reach agreement.

The “Deadlock” section is a corporate governance mechanism that applies only to “Disputed Matters,” which are defined as matters “requiring Board or Member approval” on which the board is unable to reach agreement.

Looking at that definition and at other provisions of the contract giving content to the term “Disputed Matters,” the Second Circuit found ambiguity as to the parties’ intent.

Payment of prevailing party fees pursuant to Section 21(h) is not on that list, the opinion notes, suggesting that disputes under Section 21(h), on prevailing party fees, may very well fall outside the scope of Section 16’s arbitration provision.

Nothing in Section 21(h), the opinion states, “suggests that such relief [compelling payment of prevailing party fees] is contingent upon board approval; to the contrary, it unambiguously directs the non-prevailing member to pay such costs and fees ‘upon demand.’”

For the Second Circuit, that ambiguity blocked a conclusion that the “competence-competence” provision in AAA Rule R-7(a) clearly allocated the “who decides” gateway decision to the arbitrator.  Consequently, under First Options, the gateway decision lay with the courts:

“While the arbitration agreement does indeed incorporate the AAA Rules, which empower the arbitrator to resolve questions of arbitrability, Section 16(b) provides that the AAA Rules ‘apply to such arbitrations as may arise under the [JV] Agreement.’ See NASDAQ OMX, 770 F.3d at 1032; SA.16.  Because Section 16(b)’s arbitration clause applies only to ‘Disputed Matters’ not resolved pursuant to the mediation process outlined in Section 16(a), the AAA Rules do not apply ‘until a decision is made as to whether [DDK Hospitality’s supplemental claim] does or does not fall within the intended scope of arbitration[.]’ NASDAQ OMX, 770 F.3d at 1032.  In other words, whether the AAA Rules, including Rule 7(a), apply turns on the conditional premise that the dispute falls within the definition of ‘Disputed Matter.’ If it does not, then the AAA Rules do not govern and no delegation of authority to the arbitrator to resolve questions of arbitrability arises.  The narrow scope of the arbitration provision therefore obscures the import of the incorporation of the AAA Rules and creates ambiguity as to the parties’ intent to delegate arbitrability to the arbitrator.”

Thus, the Second Circuit held in DDK Hotels that the contractual agreement in the JV agreement limiting arbitration to “Disputed Matters” operated to prevent allocation of the arbitrability decision to the arbitrator under the “clear and unmistakable” First Options test.  Accordingly, “[t]he district court therefore correctly determined that it, rather than the arbitrator, should decide whether the supplemental claim [for prevailing party fees] was arbitrable.”

One might reasonably ask how DDK Hotels squares with the unanimous 2019 U.S. Supreme Court decision, Henry Schein Inc. v. Archer & White Sales Inc., 139 S. Ct. 524 (2019) (available at http://bit.ly/2YLDkWQ), rejecting a “wholly groundless” basis for declining to forward a gateway question to arbitrators for decision. 

In Henry Schein, the Court’s summary does a good job of setting out the core of that ruling:

“Held: The ‘wholly groundless’ exception to arbitrability is inconsistent with the Federal Arbitration Act and this Court’s precedent.  Under the Act, arbitration is a matter of contract, and courts must enforce arbitration contracts according to their terms.  . . . The parties to such a contract may agree to have an arbitrator decide not only the merits of a particular dispute, but also ‘’gateway’ questions of ‘arbitrability.’’ . . . Therefore, when the parties’ contract delegates the arbitrability question to an arbitrator, a court may not override the contract, even if the court thinks that the arbitrability claim is  wholly groundless.”

Under the doctrine rejected by the Supreme Court in Henry Schein, the courts would have construed the parties’ contract to determine if the claimant’s arbitrability argument was “wholly groundless.”  Even in the face of a “clear and unmistakable” agreement to delegate arbitrability issues to the arbitrator, if the court was satisfied the arbitrability argument was “wholly groundless” under the contract, then the court could determine the arbitrability issue itself instead of referring the gateway question to the arbitrator.

In DDK Hotels, the district court and the Second Circuit again construed the parties’ contract, this time to determine if the parties’ intention to delegate the gateway issue to the arbitrator was ambiguous rather than clear and unmistakable.

To distinguish DDK Hotels from Henry Schein, one must come up with a persuasive explanation for how (i) the 2nd Circuit Court of Appeals’ inquiry into whether the dispute at issue in DDK Hotels arguably fell outside the meaning of the contract term “Disputed Matters” differs from (ii) the judicial inquiry into the contract terms in Henry Schein to determine if the claim of arbitrability was “wholly groundless.” 

This is perhaps a task the US Supreme Court declined to take on when it dismissed certiorari in Henry Schein II as improvidently granted earlier this year?

Any volunteers to tackle that job? Please feel free to comment below.

* * *

Mark Kantor is a member of CPR-DR’s Panels of Distinguished Neutrals.  Until he retired from Milbank, Tweed, Hadley & McCloy, he was a partner in the firm’s Corporate and Project Finance Groups.  He currently serves as an arbitrator and mediator.  He teaches as an Adjunct Professor at the Georgetown University Law Center (Recipient, Fahy Award for Outstanding Adjunct Professor).  He also is Editor-in-Chief of the online journal Transnational Dispute Management.  He is a frequent contributor to CPR Speaks, and this post originally was circulated to a private list serv and adapted with the author’s permission.

[END]

UNCITRAL Completes a New Mediation Framework, Based on the Singapore Convention

By Mylene Chan

Earlier this month, the United Nations Commission on International Trade Law adopted the UNCITRAL Mediation Rules, the UNCITRAL Notes on Mediation, and the Guide to Enactment and Use of the UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation. 

Judith Knieper, Legal Officer at the UNCITRAL Secretariat, at a side forum on investor-state mediation, commented that these texts complete UNCITRAL’s mediation framework, with the milestone 2018 Singapore Convention on international settlement agreements as a pillar. 

Starting in 1980, UNCITRAL began to develop a mediation framework, which now includes the following:

  • UNCITRAL Conciliation Rules (1980) (updated in 2021).
  • UNCITRAL Model Law on International Commercial Conciliation (2002) (amended in 2018).
  • UNCITRAL Guide to Enactment and Use of the 2002 Model Law (2002) (replaced in 2021).
  • UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation (2018) (amending the 2002 Model Law). See page 2 of UNCITRAL Working Document 1073 here.
  • The United Nations Convention on International Settlement Agreements Resulting from Mediation (2018), commonly known as the “Singapore Convention.”
  • UNCITRAL Mediation Rules (2021) (updating the 1980 Conciliation Rules)
  • UNCITRAL Notes on Mediation (2021).
  • Guide to Enactment and Use of the UNCITRAL Model Law on International Commercial Mediation and International Settlement Agreements Resulting from Mediation (2021) (replacing the 2002 Guide) (available in the Working Document linked above). 

These texts provide a means for the harmonization of laws, procedural rules, and enforcement mechanisms for international mediation. The most significant tool for international commercial dispute resolution is the Singapore Convention, which enables enforcement of mediated settlement agreements among its signatories.

As a result of the adoption of the Singapore Convention, international businesses now have an effective alternative to litigation and arbitration in resolving cross-border disputes.  Judith Knieper said that 54 states had signed the Singapore Convention, and she said she hoped that more will join as many states are currently engaged in the ratification process.

The UNCITRAL Secretariat has invited CPR to participate as an observer delegation to its Working Group II deliberations, and solicited its comments on the drafts to facilitate finalizing the texts. The UNCITRAL Working Group II is composed of UNCITRAL’s 60-member states and has been developing work focused on mediation, arbitration, and dispute settlement. 

During UNCITRAL’s recent 54th session, which ran from June 28 and concluded July 16, and was held in person in Vienna, Working Group II introduced a number of updated provisions aimed at taking into account recent mediation trends and developments, including court-ordered mediation. See page 2 UNCITRAL Working Document 1074 here. UNCITRAL incorporated Working Group II’s revisions as part of the newly adopted UNCITRAL Mediation Rules.

Major updates in the UNCITRAL Mediation Rules include the following:

  • Clarify that the rules apply to mediation regardless of the process’s origin, including an agreement between the parties, an investment treaty, a court order, or a mandatory statutory provision.
  • Introduce a definition of mediation.
  • Stipulate that in a case of conflict, mandatory provisions in the applicable international instrument, court order, or law will prevail.
  • Specify that mediation commences when the disputants agree to engage in the mediation.
  • Require disclosure of circumstances regarding impartiality or independence.
  • Permit use of alternative means of communication during the mediation and of remote consultations.
  • Provide that information shared by parties with the mediator is confidential unless parties express otherwise.
  • Update the provisions governing the preparation of settlement agreements to take into account UNCITRAL’s legal framework, including the recently adopted Singapore Convention.  
  • Address the interaction between mediation and other proceedings.
  • Provide for exclusion of liability for mediators.
  • Encourage gender and geographical diversity in selection of mediators.
  • Specify that parties and the mediator should agree upfront on the methods of assessing mediation costs, with multiparty mediations shared on a pro rata basis.

UNCITRAL is expected to publish the UNCITRAL Mediation Rules and the UNCITRAL Notes on Mediation together later this year, according to a statement at the end of the session.

UNCITRAL’s work on mediation will continue with the drafting of rules and guidelines relating to investor-state mediation and with work exploring educational best practices, according to an official’s comments in a side forum, which is a lunch-hour roundtable in which UNCITRAL officials discussed topics related to UNCITRAL’s work.

Benjamin N. Cardozo School of Law Prof. Lela Love, who is chair of the International Advisory Board on Mediation for the Office of Ombudsman for the United Nations Funds and Programmes, commented about the developments reported here:

All this remarkable focus on mediation—and activity around it—heralds a new era for the dispute resolution process that ideally promotes enhanced understanding, dialogue and creative problem solving.  This may be a renaissance time for mediation—one that is very welcome in the divided and polarized time we inhabit.

* * *

The author, an LLM candidate at Yeshiva University’s Benjamin N. Cardozo School of Law in New York, has covered UNCITRAL’s 54th Session proceedings as a 2021 CPR Summer Intern.

UN Insolvency Work Finds Help with Mediation

By Mylene Chan

The United Nations Commission on International Trade Law adopted a simplified insolvency regime that recommends mediation to resolve disputes between financial sector creditors and small debtors during its 54th Session. 

The move sets out a path where mediation can be a help to debt-plagued businesses in developing and emerging countries.

Last Friday, UNCITRAL closed its 54th Session in Vienna, which began June 28. During this session, Working Group V on insolvency law finalized legislative recommendations for a simplified insolvency regime for micro and small enterprises, or MSEs, and UNCITRAL adopted it. 

UNCITRAL mandated this project in 2013 because the insolvency rules generally applicable to mid-sized and large business enterprises do not accommodate micro and small businesses, which are the driving economic force for many countries. Gregor Baer, 14:2 Insolvency and Restructuring Int’l 64 (Sept. 2020) (available at https://bit.ly/3B1peox).

As part of the United Nations’ sustainable development goals, UNCITRAL has also asked its  Working Group I, on micro, small and medium enterprises, to make recommendations to reduce legal obstacles faced by micro and small businesses in developing countries. Id.

The drafting of the simplified insolvency regime has been coordinated with the World Bank Group because the Financial Stability Board designated both the World Bank and UNCITRAL as standard setters in the field of insolvency. Financial Stability Board, Insolvency and Creditor Rights Standard (Jan. 20, 2011) (available at https://bit.ly/36EKqTi).

In light of the significant negative impact of Covid-19 on MSEs, several member states of Working Group V have expressed an urge to expedite the drafting of the simplified insolvency regime. UNCITRAL, Capital Markets Intelligence, “International Insolvency & Restructuring Report 2020/21” (available at https://bit.ly/2VBeg8P).

Ironically, because many member states have implemented insolvency-related legislative measures to address difficulties faced by MSEs during the health emergency, the pandemic has created valuable experiences that could help improve the text of the simplified insolvency regime.

The simplified insolvency regime addresses major characteristics of small debtors, such as having a non-diversified creditor, supply, and client base. See Note by the Secretariat,  “Insolvency of micro, small and medium-sized enterprises: Draft text on a simplified insolvency regime” (Sept. 28, 2018) (available at https://bit.ly/3ie53Ll).  

Other distinguishing features of small debtors covered by the simplified insolvency regime include the access to credit being subject to the grant of personal guaranties, encumbrance of physical assets, and unencumbered assets with minimal value.  In addition, the simplified insolvency regime considers small debtors’ frequent poor or nonexistent records, overlapping ownership control and management, and “concerns over stigmatisation.” See UNCITRAL, Capital Markets Intelligence, International Insolvency & Restructuring Report at 10, linked above.

The simplified insolvency regime focuses on mechanisms to bring micro and small business debtors into a formal insolvency system that provides rehabilitation and a reasonable payment plan.  Through reduced complexity of insolvency procedures, lowered costs, and more favorable conditions for a prompt discharge, small debtors could hope to have a fresh start.  See Note by the Secretariat at page 7, linked above.

Member states have proposed endorsing out-of-court and hybrid procedures to develop workable alternatives to formal insolvency processes amicable to MSEs. Report of Working Group V (Insolvency Law) on the work of its 54th session (Vienna, 10–14 Dec. 2018) p. 22 (Dec. 20, 2018) (available at https://bit.ly/3z29MGR).  

During previous drafting stages, some member states explained that certain preconditions should exist for out-of-court and hybrid procedures to be effective, such as incentives for financial institutions to negotiate debt restructuring and to suspend the debt.  Those procedures, however, were generally more suitable for large and medium-sized enterprises.

Other member states explained that in some jurisdictions, positive tax impacts of debt forgiveness are available as incentives for financial sector creditors to negotiate debt restructuring with small debtors. In other jurisdictions, administrative out-of-court procedures and mediation have yielded positive results.

In previous negotiation stages, some national delegations and development-focused non-governmental organizations suggested non-punitive rehabilitation of small debtors to promptly restore their economic productivity. See Baer, linked above.

* * *

In this month’s session, Working Group V adopted the following commentaries in the simplified insolvency regime to provide guidance that mediation could be helpful in resolving disputes relating to MSEs:  

To avoid delays and at the same time to ensure transparency and predictability, this [text] recommends that a simplified insolvency regime should provide for the default procedures and treatment that can be overridden by the decision of the competent authority on its own motion or upon request of any party in interest. The competent authority may modify the proceedings by introducing, for example, a mandatory mediation stage or displacing the debtor- in-possession with an independent professional.

Note by the Secretariat, “Draft text on a simplified insolvency regime” 38, ¶ 75. (Feb. 16, 2021)  (available at https://bit.ly/3id8IJw).

Mediation and conciliation services may also be helpful for resolution of disputes between MSE debtors and creditors and among creditors.

Note by the Secretariat, “Draft text on a simplified insolvency regime Addendum” 38, ¶ 75. (Feb. 16, 2021)  (available at https://bit.ly/3raOQKU).

* * *

The simplified insolvency regime is expected to appear as Part V of UNCITRAL’s Legislative Guide on Insolvency Law.

Developing and emerging countries, where MSEs may drive the economies, are among those hit hardest by the economic contraction spurred by the Covid-19 pandemic. Small debtors’ insolvency affects job preservation and the supply chain.

On July 16, the final day of the 54th session, Caroline Nicholas, Senior Legal Officer of UNCITRAL, commented on technical assistance activities focusing on MSEs recovery from the effects of the pandemic:  

What is really interesting to hear is the experience in three continents, in Africa, Latin America, and Asia. We have some emphasis on exactly the same points, the need for agility, the need for syndicated simplified measures and the need for speed in supporting MSEs so that they are receiving the financial and other support.

As the world is gaining control over the Covid-19 virus, mediation emerges as a potential solution to help ease the recovering path for struggling segments by bringing creditors to negotiate with small debtors. 

With the help of mediation and incentivized policies for creditors to suspend or forgive debts, perhaps many MSEs can recover their economic productivity and help developing and emerging countries restore economic and social welfare after the pandemic. 

* * *

The author, an LLM candidate at Yeshiva University’s Benjamin N. Cardozo School of Law in New York, has covered UNCITRAL’s 54th Session proceedings as a 2021 CPR Summer Intern.

[END]

CPR Employment Disputes Committee: Ombud’s Role in Addressing Worker Complaints Is Analyzed

By Daneisha LaTorre

Last month, CPR’s Employment Disputes Committee presented a Zoom discussion highlighting ombuds programs. The panel focused on how ombuds are set up, the services they provide, and their roles within organizations.

Natalie C. Chan, an associate in Sidley Austin’s Chicago office, moderated the June 16 discussion between Joan C. Waters, the University Ombuds Officer at Columbia University in New York, and Timothy Shore, former ombuds at Pfizer Inc.

The event began with a short presentation introduced by the CPR committee chair, Aaron Warshaw, a shareholder in the New York office of Ogletree, Deakins, Nash, Smoak & Stewart, on CPR’s recently released Administered Employment Arbitration Rules, which are available here.

A rules discussion was led by veteran committee members Alfred G. Feliu, a neutral based in New Rochelle, N.Y.; Christopher C. Murray, a shareholder in the Indianapolis office of Ogletree, Deakins, Nash, Smoak & Stewart’s Indianapolis office, and Wayne N. Outten, chair and founding partner of New York’s Outten & Golden. It highlighted Rule 1.4 (Due Process Protections) and Rules 3.12-3.13 (Joinder and Consolidation).

The due process rule is in place to provide fairness, and link to the separate Due Process Protections established by CPR, which can be found at https://bit.ly/3hELLQa.  

CPR also created an innovative procedure through the joinder and consolidation rule, which uses an Administrative Arbitrator to address those issues.

The rules were developed by counsel from the plaintiff’s bar, in-house employment counsel, corporate defense attorneys, and neutrals to ensure fairness throughout the rules. For example, the rules provide detailed guidance to address cases where a party has refused to pay required fees, including guidance on preserving the rights of the defaulting party. The rules also provide factors to consider for discovery, early disposition and remote hearings.

The discussion noted that the rules are specifically designed to avoid ambiguity and interpretative disputes.

The discussion also emphasized the importance of the arbitration rules on addressing imbalances between employees and employers. A CPR Speaks post devoted to the rules can be found here.

* * *

After the arbitration rules presentation, Natalie Chan opened the discussion about ombuds programs, their function, and their benefits . Panelists Joan Waters and Tim Shore provided insight into their experience as ombuds from an academic and corporate perspective.

An ombuds is an official appointed to hear individual concerns regarding issues that may arise in the workplace—Shore emphasized the session’s focus on “organizational ombuds,” as opposed to, say, consumer advocate ombuds jobs. In comparison to human resources professionals, ombuds have an obligation to keep the employee information provided confidential. This method creates a safe space and helps to surface workplace conflict or concerns.

As an ombuds in academia, Joan Waters explained that her role at Columbia University is to serve faculty, students, staff, and any affiliates connected to the institution, including parents and alumni, to hear concerns, act as a referral source and help with conflict negotiation.

Waters explained confidentiality is the most significant contributor to her work. As an ombuds, Waters is not authorized to accept notice on behalf of the university or to keep records of any interaction with the individuals who seek guidance. Specifically, individual’s identities are not disclosed unless there is an imminent risk of serious harm. Waters explained that if an ombuds is presented with information that seems to cause an imminent risk of harming an employee, she can use her discretion to disclose the information.

Tim Shore provided perspective on the responsibilities and role of a corporate ombuds. In his former longtime role at Pfizer—where he was the company’s first ombuds–Shore had the responsibility to oversee the operations of the Ombuds Office.  In this capacity, Shore reported administratively to the chief compliance officer but had direct access to the company’s chief executive officer and board of directors.

Shore explained that an ombuds provides employees with a place that they can raise issues confidentially.

Ombuds help individuals get to the roots of their issues.  If appropriate, the ombuds can also help workers understand the formal steps to be taken if the employee decides that he or she wants to formally report the issue to the company. The process allows employees to control their conflicts and decide if and how that want to take steps to resolve the matter.

To help attendees better understand ombuds programs, moderator Natalie Chan proposed a hypothetical from an employee’s perspective, stating on behalf of a complainant, “I just feel like I’m not being treated properly. My manager doesn’t seem to take my suggestions seriously . . . and I don’t like his tone.  . . . I feel like my male counterpart in the same department is getting preferential treatment and better opportunities.”

Joan Waters explained that the hypothetical is typical of what she often hears from employees. As an ombuds, the mission includes helping employees refine their concerns and understand the process of resolving their dispute. Shore explained that often, people will label their issues, such as, “I’m being bullied” or “I’m being discriminated against,” instead of explaining in detail the core issues at hand.

The ombuds’ goal, said Shore, is to identify the specific issues an employee is facing and help provide the employee with the tools he or she needs to resolve those issues.   During these conversations, ombuds may walk employees through constructive meetings with their managers about their issues or discussing the formal internal process if an employee wants to escalate the situation.  

The question of whether ombuds must report potential discrimination claims that come to their attention was raised. The panelists explained that an ombuds is precluded from reporting unless there is an imminent risk of serious harm.

As ombuds, however, their mission is never to let an employee walk out of the office without a plan to resolve the situation, especially when dealing with a discrimination or harassment issue.

Waters stated that her goal when individuals discuss their situations is to help them specifically identify the problem. She believed once employees understood their options, the individuals would be better equipped to move forward with their concerns if they choose.  

Shore stated that his former organization does not track the specific identity of individuals.  But, he reported, it does track demographic information such as race or gender of the individuals that came to the ombuds office.  This allows the ombuds office to identify trends across the organization.  When the data reveals a pattern in a location or department, an ombuds can bring that issue to the attention of the appropriate leadership without revealing the identity of any of the individuals involved.

Shore also stated that the employee’s perceptions should not be ignored. He said that perceptions are real, and if there are numbers of employees with the same perception, the problems the perception reveal must be addressed.

Shore added that formal employment claims have declined at the company since the launch of Pfizer’s ombuds program. Additionally, he emphasized the cost of an ombuds resolving an employee dispute is a fraction of the time and money spent resolving more formal claims.   

Shore said that, despite their effectiveness, ombuds programs are not common in corporations, with less than 10% of U.S. companies having a program.  

Finally, panelists highlighted training programs for individuals interested in becoming ombuds. Both panelists suggested training from the International Ombudsman Association. Waters also suggested Columbia University’s masters’ program in Negotiation and Conflict Resolution.

To learn more about ombuds, Tim Shore has a video on the CPR Speaks blog. Additionally, for training opportunities, you can access the Columbia Ombuds Office masters’ program here and IOA training here.

The June 16 CPR Employment Disputes Committee video on the panel discussion can be viewed by individuals at CPR members after logging into CPR’s website here.

* * *

The author, entering her second year at Washington, D.C.’s Howard University School of Law, was a CPR 2021 Summer Intern.

[END]

United States Submits Amicus Brief in Servotronics International Arbitration Supreme Court Case

By Cai Phillips-Jones

Multiple parties have filed briefs concerning arbitration discovery rules in a case now before the U.S. Supreme Court for fall argument, Servotronics v. Rolls Royce, No. 794 (see the Court’s official docket at https://bit.ly/3ysbMrL).  

In the case, the Court will decide the question of whether federal district courts can assist with obtaining evidence in foreign arbitration cases at the parties’ request. The argument date has not yet been set.

The U.S. Solicitor General’s office in the Justice Department has filed an amicus brief advocating on behalf of the U.S. government for a narrow interpretation of 28 U.S.C. 1782, a law that has created a split among federal circuit courts. The law allows circuit courts to authorize discovery for litigation originating in “foreign tribunals,” including compelling testimony from witnesses residing in the United States. 

But circuit courts have not been able to agree about whether the law pertains to arbitration taking place in foreign countries: The Fourth and Sixth U.S. Circuit Courts of Appeals support court involvement in discovery for these arbitrations under Section 1782, and the Second, Fifth and Seventh Circuits reject this interpretation of the law.

The Fourth and Seventh Circuits both heard the same Servotronics case that is now on the Supreme Court docket. The circuit courts reached opposite conclusions. For background on the cases’ paths and how the current Seventh Circuit case made it to the Supreme Court, see Amy Foust, “The Next Arbitration Matter: Supreme Court Agrees to Decide Extent of Foreign Tribunal Evidence Powers,” CPR Speaks (March 22) (available at https://bit.ly/36cp27K), and “YouTube Analysis: What Happens Next with the 3/22 Servotronics Cert Grant on Foreign Arbitration Evidence,” CPR Speaks (March 22) (available at https://bit.ly/3jLbVT3).

CPR, which publishes CPR Speaks, submitted an amicus brief in support of the Servotronics certiorari request in January, which also was the subject of an amicus brief by the Atlanta International Arbitration Society. Since the petition was granted, 11 additional amicus briefs, including the brief of the Solicitor General’s office, have been filed.

Of the group, two state that they do no support either party–those of Prof. Yanbai Andrea Wang, of Philadelphia’s University of Pennsylvania Carey Law School, who asks the Court to clarify the scope of Section 1782, previously interpreted in the Intel case discussed below; and the International Court of Arbitration of the International Chamber of Commerce, which discusses the ICC’s international law views.

Two briefs support the petitioner, submitted on behalf of Columbia Law School Prof. George A. Bermann; and Palo Alto, Calif.-based ADR provider Federal Arbitration Inc.

Seven of the briefs support the respondent in seeking a narrow scope for Section 1782 discovery to exclude international arbitrations. In addition to the U.S. government’s brief, they include briefs submitted on behalf of China and Hong Kong-based arbitrators Dr. Xu Guojian, Li Hongji, Zhu Yongrui, Tang Qingyang, Chi Manjiao, Ronald Sum, and Dr. Zhang Guanglei; the U.S. Chamber of Commerce and the Business Roundtable; International Arbitration Center in Tokyo;  the General Aviation Manufacturers Association Inc. and the Aerospace Industries Association; Halliburton Co., which is facing a Section 1782 issue in a separate case, and the Institute of International Bankers, a New York City-based industry association of international banks operating in the United States.

* * *

In its brief, the government reviews the history of requests for discovery from foreign parties.

According to the amicus brief, prior to 1855, federal courts did not have the authority to compel a witness to testify in a case involving a foreign state party. In 1855, an act was passed by Congress to remedy this, but in a strange twist this law was subsequently “buried in oblivion” due to “a succession of errors in indexing and revising the statutes” and lost to the courts. A similar law was passed in 1877 and, in 1948, the law was broadened to include discovery for non-state parties.

In 1964, the language in the law was broadened again, applying to “a proceeding in a foreign or international tribunal” compared to the previous version’s “any judicial proceeding in any court in a foreign country.” Since then, only one Supreme Court case has discussed the scope of the law, Intel Corp. v. Advanced Micro Devices Inc., 542 U.S. 241 (2004).

The case concerned the distinction between judicial and administrative processes and whether Section 1782 applied to the latter. The Court found it applied. But recently, disagreement  has sprung up about whether the “foreign tribunal” language includes arbitrations involving foreign parties. The U.S. government has now taken the position that the law should not apply to private foreign arbitrations.

In its brief, United States argues (1) that such discovery functions were not within the scope of Congress’ intent when it passed 28 U.S.C 1782; (2) that interpreting the law to apply to international commercial arbitrations would create asymmetry with the domestic rules of arbitration incorporated in the Federal Arbitration Act; and (3) such an interpretation would create additional problems if extended to investor-state arbitration.

Noting that previous versions of the law clearly referred to only courts, the government acknowledges that the 1964 revision changed this language from “any judicial proceeding in any court in a foreign country,” to “a proceeding in a foreign or international tribunal.” This change, according to the government, and in contrast to the Fourth Circuit’s interpretation, was “only a measured expansion of the provision’s scope to capture quasi-judicial entities (such as investigating magistrates) and certain intergovernmental bodies (such as state-to-state claims commissions).” As the government points out, at the time the 1964 law was passed, international commercial arbitration was still novel, and thus likely outside Congress’s intent.

The government’s second argument discusses the incongruence of the limited discovery available under the FAA to arbitrators, in contrast to the discovery requests available to parties under Section 1782. Interpreting the law to apply to commercial arbitrations would “[allow] more expansive discovery in foreign disputes than what is permitted domestically,” the government’s amicus brief states.

While the court acknowledges that Section 1782 is not coextensive with domestic discovery rules, the “stake asymmetry” produced by a broad interpretation of the law “should [be taken] into account” in determining the law’s scope.

Finally, the government discusses a particular type of arbitration, investor-state arbitration, which gives investors who have claims against a foreign state in which they held an investment a private remedy for losses allegedly caused by the state. Arbitration in this context replaced a more time-consuming and expensive process, diplomatic protection, involving a government negotiating a resolution on behalf of one of its citizens who has suffered an economic injury.

The solicitor general’s amicus brief argues that investor-state arbitrations would be hampered by additional discovery procedures and “upset settled expectations” of investor and state parties entering contracts.

The U.S. government, in addition to filing a brief, has requested permission from the court to argue the case with the parties this fall The Court has not yet acted on the oral argument request, which is expected to be granted.

Meantime, the underlying arbitration in Servotronics has been conducted in London the week of May 10. If a decision emerges before the Court hears the arguments, the existence of an arbitration award could raise questions of mootness.

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The author, a J.D. student who will enter his third year this fall at Yeshiva University’s Benjamin N. Cardozo School of Law in New York, is a 2021 CPR Summer Intern.

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