Approach of the European Union to Bilateral Investment Treaties Concluded Between the Member States: Initial Thoughts on Draft Plurilateral Agreement for the Termination of Intra-EU BITs

 

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By Krzysztof Wierzbowski[1] and Aleksander Szostak[2]

The compatibility of investment protection treaties entered into between EU member states (the ‘Intra-EU BITs) with the regulatory framework of European Union law has been a controversial issue for quite some time. It can be recalled that the decision of the Court of Justice of the European Union (the ‘CJEU’) in Achmea (formerly Eureko) v. Slovakia (the ‘Achmea Decision’) declared investor-state dispute settlement clauses in intra-EU BITs as contrary to EU law. In particular the CJEU stated that disputes before arbitral tribunals based on intra-EU BITs may relate to matters of interpretation and/or application of the EU law. While a preliminary ruling procedure under Art. 267 TFEU enables courts and tribunals of member states to file a request pertaining to the interpretation and application of the EU law, no arbitral tribunal constitutes a court or tribunal under the meaning of the provision and, therefore, such arbitral tribunal cannot request a preliminary ruling.

As decisions of arbitral tribunals are final and, therefore, in principle, cannot be appealed to the national courts, the CJEU has found here a threat to proper interpretation and application of the EU law, which in turn has an adverse effect on the autonomy of the EU law .

The direct implication of the Achmea Decision is that investor-state arbitrations based on intra-EU BITs are not compatible with the EU law and should not be initiated. This may have a severe impact on foreign investors engaging in the European market and the foreign direct investment protection system in the EU.

In line with commitments contained in political declarations issued by the representatives of the governments of the EU member states on 15 January 2019, EU member states have quite recently reached an agreement on the text of a plurilateral treaty for the termination of intra-EU BITs.[3] Although it appears that the official text of the plurilateral treaty is not publicly available, its draft text has been leaked (the “Termination Treaty”) and may provide much needed insight into the future shape of EU policy towards protection of EU investors in the EU and the fate of intra-EU BITs. [4]

The fate of intra-EU BITs

According to the text of the Termination Treaty, intra-EU BITs listed in an annex to the Termination Treaty are to be terminated and shall not produce legal effects. Intra-EU BITS will therefore be terminated by means of mutual consent of contracting parties through a plurilateral treaty, which may prove to be the most efficient method of terminating all of intra-EU treaties in a consistent manner.

As a matter of certain standard, investment protection treaties provide for a solution applicable in the case of termination of the treaty. Investors enjoy continued protection for a set period of time, thereby not being surprisingly deprived of certain rights that might have been taken into account when the investment decision was made and implemented.

Interestingly, the Termination Treaty provides that such sunset clauses contained in intra-EU BITs, gguaranteeing the continued protection of investments existing prior to the termination of the relevant BIT, shall be terminated together with respective intra-EU BIT and shall not produce legal effects. Whether such termination by the Termination Treaty, without modification of intra-EU BITs by removing the sunset clauses from the legal framework and, subsequently, terminating each of BITs entirely, will be effective may be debatable (in particular by affected investors).

The Termination Treaty adds a degree of uncertainty with respect to the application of the Energy Charter Treaty (the ‘ECT’) in intra-EU relations. The Termination Treaty provides that it does not cover intra-EU proceedings initiated on the basis of the ECT and that this matter will be dealt with at a later stage. This may put many EU member states and foreign investors currently engaged, or considering engaging in intra-EU proceedings based on the ECT, in a disadvantageous position. It is noteworthy that recent years have witnessed a number of intra-EU ECT claims directed by foreign investors against for instance Spain (concerning reform of renewable energy sector).

The Termination Treaty appears to endorse the view that the legal framework of the EU sufficiently protects investors engaging in the European market. After all, by exercising some of the fundamental freedoms, such as freedom of establishment and free movement of capital, investors from EU member state fall within the scope of application of the EU law and enjoy protection under inter alia primary and secondary EU law as well as general principles of EU law.[5] It may however be doubtful that EU law and the national law of member states will always be perceived to de facto guarantee effective procedural and substantive protection to foreign investors engaging in the European market. One may identify a number of concerns associated with the potential bias of national judges, political pressure exerted by governments, corruption and malfunctioning of the domestic judiciary in general, which indicates that the view expressed in the Termination Treaty may be debatable.

One size does not fit all: concluded, pending and new arbitration proceedings

Although the Termination Treaty stipulates that all intra-EU BITs listed in an annex shall be terminated and shall not produce legal effects, it additionally addresses the status of arbitration proceedings under intra-EU BITs. In particular, the Termination Treaty distinguishes between three categories of arbitration proceedings under intra-EU BITs:

  • New arbitration proceedings

The Termination Treaty defines these as arbitration proceedings initiated on or after 6 March 2018 (i.e., on or after the date of Achmea Decision).

The Termination Treaty stipulates that arbitration clauses in intra-EU BITs shall not serve as legal basis for new arbitration proceedings as defined above.[6] This indicates that any intra-EU investment treaty arbitration initiated after the Achmea Decision will be declared as ineffective.

  • Concluded arbitration proceedings

The Termination Treaty defines these as:

Arbitration Proceedings which ended with a settlement agreement or with a final award issued prior to 6 March 2018 [the date of Achmea Decision] where:

  1. the award was duly executed prior to 6 March 2018, even where a related claim for legal costs has not been executed or enforced, and no challenge, review, set-aside, annulment, enforcement, revision or other similar proceedings in relation to such final award was pending on 6 March 2018, or
  2. the award was set aside or annulled before the date of entry into force of this Agreement;[7]

These intra-EU investment treaty arbitration proceedings will not be affected by the Termination Treaty. Accordingly, any award, final decision, or settlement issued before 6 March 2018 will not be considered as invalid, or not effective.

  • Pending arbitration proceedings

The Termination Treaty defines pending arbitration proceedings as arbitration proceedings initiated prior to Achmea Decision (i.e. 6 March 2018), which do not qualify as concluded.[8]

For this category of arbitration proceedings, the Termination Treaty provides a mechanism which aims at assisting the parties to the pending proceedings in finding an amicable settlement of a dispute – the so-called Structured Dialogue.[9] At the outset, it is interesting to note that the Structured Dialogue mechanism to a large extent resembles procedure for investor-state mediation.

The mechanism enables foreign investors to initiate settlement procedure with a state party to the pending arbitration proceedings within six months from the termination of intra-EU BITs, thereby providing the legal basis for respective pending arbitration proceedings to become converted to or substituted by, the specific  kind of mediation.[10] The settlement procedure is overseen by an impartial facilitator whose task is to find an amicable, lawful and out of court and out of arbitration settlement of the dispute. Settlement of the dispute shall be reached within 6 months.

While the facilitator shall be designated by an agreement of parties (i.e. foreign investor and state), and shall possess in-depth knowledge of EU law, the Termination Treaty does not seem to require an in-depth knowledge of public international law, or, more importantly, international investment law.[11] Although it is doubtful that parties would appoint a facilitator that is not an expert in public international and international investment law, the lack of express requirement in this respect may lead to undesirable situations that may undermine of the Structured Dialogue mechanism.

Interestingly, the Termination Treaty provides an additional option to foreign investors that enables them to seek the judicial remedies under national law against a measure adopted by the state, such measure being subject to such initiated arbitration proceedings. In such case, national time limits for bringing legal action do not apply provided that investor satisfies several conditions.[12] It is noteworthy that the provisions of intra-EU BITs that initially provided legal basis for the parties to settle their dispute, will not be considered as part of applicable law in proceedings before a national court. Clearly, this implies that investors will not be able to base their claims on substantive provisions of intra-EU BITs, which may severely limit the possibility to lodge a successful claim against a state.

Pending and New Arbitration Proceedings: what about recognition and/or enforcement?

The Termination Treaty provides that state parties to intra-EU BITs on the basis of which pending and/or new arbitration proceedings were initiated, shall inter alia request the national court of EU state and any 3rd state, to set aside an award issued in such proceedings, or to annul it or to refrain from recognizing and/or enforcing it, as applicable.[13]

Therefore, many arbitration awards issued after Achmea decision will, at least in EU member states, be ineffective.

Although the Termination Treaty covers intra-EU BITs only (as listed in the Annex to the Treaty), it deserves to be noted that one may extend the reasoning of the CJEU in Achmea Decision regarding incompatibility of investor-state dispute settlement clauses in intra-EU BITs with EU law to BITs concluded between EU member states and 3rd states.

In particular, disputes covered by such BITs and settled through investor-state arbitration may relate to matters concerning treatment of foreign investors engaging in the European market and, thereby, interpretation and application of EU law. While it is rather doubtful that tribunals constituted on the basis of such BITs will reject jurisdiction over a dispute, there is a threat to effective recognition and enforcement in the European Union of awards issued in such arbitrations.

The national court faced with a request for recognition or enforcement of such arbitral award, or the CJEU faced with a request for a preliminary ruling, may declare that the arbitration between a non-EU foreign investor and EU member state adversely affects the autonomy of the EU law and, therefore, recognition and enforcement of such awards should be refused. It can be expected that a request for a preliminary ruling from the CJEU on this matter will be made.

This would have a devastating impact on the effectiveness of guarantees contained in such BITs. In addition, this approach, if adopted, would severely impact recognition and enforcement mechanism contained in the ICSID Convention. Namely, Art. 54 of the ICSID Convention provides that each contracting state shall recognize an award rendered by an ICSID Tribunal as binding and enforce the pecuniary obligations imposed by that award as if it were a final judgment of a court where recognition is sought. As the mechanism does not leave room for any ground on which the recognition could be refused, potential refusal by national courts to recognize awards issued in arbitrations under ICSID rules would adversely affect the effectiveness of the ICSID Convention and possibly pose a threat to its existence.

Concluding remarks

Although the official text of the Termination Treaty is not publicly available, its leaked draft may serve as a valuable source indicating the fate of intra-EU BITs.

Some of the solutions provided under the Termination Treaty, such as the mode of termination of legal effects of sunset clauses, or retroactive effect of the Termination Treaty with respect to the claims that arose and could constitute the basis of New Arbitration Proceedings, may be controversial and will most probably be contested by affected investors. It remains a matter of separate discussion what avenue the investors may have in order to effectively contest the ex post deprivation of their rights.

Some investors may decide to engage in the treaty shopping practice and seek protection under BITs other than intra-EU ones. It remains an open question whether BITs concluded between EU member states and 3rd states will be affected by the reasoning of the CJEU in Achmea Decision.

ENDNOTES

[1] Krzysztof Wierzbowski is Senior Partner at Eversheds Sutherland Wierzbowski in Warsaw, Poland.

[2] Aleksander Szostak LL.M. is a lawyer at Eversheds Sutherland Wierzbowski.

[3] See. Statement: EU Member States agree on a plurilateral treaty to terminate bilateral investment treaties [24 October 2019] available at: https://ec.europa.eu/info/publications/191024-bilateral-investment-treaties_en.

[4] Draft text of the treaty is available at: https://www.iareporter.com/articles/revealed-previously-unseen-draft-text-of-eu-termination-treaty-reveals-how-intra-eu-bits-and-sunset-clauses-are-to-be-terminated-treaty-also-creates-eu-law-focused-facilitation-p/.

[5] See. Point XI of the preamble to Termination Treaty.

[6] Art. 5 Termination Treaty.

[7] Art.1(4) Termination Treaty.

[8] Art.1(5) Termination Treaty.

[9] Art.9 Termination Treaty.

[10] Art.9(1) Termination Treaty.

[11] Art.9(8) Termination Treaty.

[12] Art.10 Termination Treaty.

[13] Art.7 Termination Treaty.

The views expressed in this article are those of the authors and do not necessarily reflect the views of The CPR Institute.

CPR Takes to the Web As ADR Continues in the Face of the Coronavirus Crisis

By Anne Muenchinger, Federica Romanelli & Michael Hotz

CPR on Monday hosted an online event, ADR in the Time of COVID-19: How Neutrals & Advocates Can Use Zoom for Mediations & Arbitrations, a 90-minute training dedicated to helping neutrals and advocates use the Zoom Professional online meeting platform, and how to integrate online tools into alternative dispute resolution practices.

Chicago-based attorney Thomas Valenti, an arbitrator and mediator who heads his own firm, and is a member of CPR’s Panels of Distinguished Neutrals, conducted the session.  Held via the platform he was discussing, Valenti showed more than 200 participants the ins and outs of Zoom Professional and how to adapt it for ADR-centric tools such as preliminary hearings, screening arbitration expert witnesses, and private party-mediator caucuses during interparty negotiations.

Monday’s lunchtime session was a follow-up to a March 17 online CPR Institute Mediation Committee where committee members, including Valenti, compared online platforms and electronic mediation techniques.

Details of both sessions are below, as well as information about an American Bar Association online ADR program held last week.

* * *

At the March 30 program, Valenti led a discussion centered around security issues, a key concern for neutrals in using online tools.  Valenti explained the many Zoom features that control access to information, including “end-to-end encryption” of meetings; identification processes; password protection for meetings; waiting rooms that control meeting attendance; the ability to lock meeting rooms once all parties are present, and auditory signals when someone enters or leaves the room.

Valenti discussed essential resources for guidance in the process of moving to an online forum, including  the ICCA-NYC Bar-CPR Protocol on Cybersecurity in International Arbitration, which provides a framework for information security measures for individual arbitration matters. He also noted Zoom’s own white paper and documents on the subject.

Valenti strongly advised using the Protocol’s Schedule A, which contains a “Baseline Security Measures” checklist and provides neutrals with the right questions about their online practice. The spirit of the Protocol, he said, is to offer a framework within which neutrals can make decisions and best adjust online tools to their individual practices and client needs.

Valenti noted the CPR Institute’s participation in the Protocol’s construction by its Working Group. CPR representatives included Senior Vice President Olivier P. André, along with Hagit Elul of Hughes Hubbard & Reed, and Micaela R.H. McMurrough, Covington & Burling, both New York-based partners at their respective firms.

Several Zoom features were explained and demonstrated, including breakout rooms, which can be used for private meetings and caucuses; screen sharing and white boards, which allow for information display or form filling on the spot, and document annotation by all attendees.

A recording of the session will be available soon on the CPR Institute’s new website Resources coronavirus clearinghouse page, ADR in the Time of COVID-19.

Valenti warned that users must recognize the potential shortcomings of online ADR. The assessment of body language will be limited, and there are no guarantees that there is no one sitting off camera or that the meeting is not being recorded.

Meeting participant Dean Burrell, of Morristown, N.J.’s Burrell Dispute Resolution, suggested a tactic he uses to deal with potential issues: He said he asks the parties to scan the room every so often to confirm no one else is present.

Another concern often raised is whether the session is being recorded; Valenti pointed out, however, that this concern is similar to any other mediation or arbitration with the use of smartphones. Hosts should acknowledge that the process is not perfect, but that risks can be minimized.  He said hosts should ask participants if someone else is in the room and not to record the session.

But beyond the  COVID-19 crisis, online ADR practice provides a useful tool for reducing costs and improving efficiency.

For arbitrators, online tools such as Zoom can help them stand out among tech-averse peers, and market themselves as having the ability to continue to push matters forward.

For mediators, online tools should be an addition to an experienced mediator’s set of skills, and can easily be used to set up documents, type in agendas, and set goals during a session. Hosts can also pass control to another party, and use different colors to identify each participant.

Valenti’s demonstration featured a video with Giuseppe Leone, founder of Virtual Mediation Lab, and showed that online mediation is not a new phenomenon. But the COVID-19 crisis is providing the ADR world with an opportunity to move itself forward with technology—not just as a substitute, but as a way to improve its practices.

Valenti recommended that the session host prepare all necessary documents beforehand and have them available on the host computer before beginning the online session, ready for display and sharing. Additionally, mediators should be more conscious about time when conducting an online, as the experience initially will be different from one in a physical space.

Hosts should also be conscious of the level of skill and familiarity that parties and counsel have with these online tools.

Valenti suggested using the initial pre-hearing conference, as set out under CPR Institute Administered Arbitration Rule 9.3, and in the 2019 CPR Rules for Administered Arbitration of International Disputes as an opportunity to test each participant’s level of comfort.

So an easy way to introduce online tools is to switch from a phone call to a video conference for the initial prehearing.

* * *

The genesis of Monday’s CPR members and neutrals-only Zoom training was CPR’s March 17th Mediation Committee meeting.

The Mediation Committee meeting featured two speakers–Kathleen Scanlon, Chief Circuit Mediator for the Second U.S. Circuit Court of Appeals in New York, and James South, Managing Director, Senior Consultant and Mediator for the Center for Effective Dispute Resolution (CEDR) in London—who presented their perspectives on a variety of mediation issues, including a comparative look at mediation practices on either side of the Atlantic, before focusing on mediating during the coronavirus pandemic.

The Committee then heard how CAMP (the Second Circuit’s mediation and settlement program), CEDR, CPR and the New York District office of the Equal Employment Opportunity Commission are dealing with mediations through the COVID-19 pandemic.

Kathleen Scanlon began by discussing the benefits of Sonexis (see sonexis.com) as a conferencing system.  She explained that it delegates pin numbers to each participant and allows the mediator to create private rooms for each party and join them as needed. Parties can then notify the mediator when they want to talk with the mediator.

She said there hasn’t been too much difference, anecdotally, between the success rates of mediating in person and with teleconference. Still, the video/audio approach leads to more accidental interruptions. It also decreases the ability to read body language, which can affect trust. The teleconference process also can be more tiring for the mediator to manage.

CEDR’s James South then stated that he uses Zoom.  Meeting participant Thomas Valenti agreed, also recommending the business version of Zoom to conduct more complicated mediations—which prompted the Monday, March 30 session he led, discussed above.

The Mediation Committee meeting participants, who like the March 30 session also participated by Zoom, agreed that it is critical that the conferencing technology used complies with privacy and confidentiality rules like Europe’s General Data Protection Regulation (best known as the GDPR). It also was recommended that the parties should consult the ICCA-NYC Bar-CPR Cybersecurity protocol.

James South noted that many mediations had been going on normally during the early stages of the coronavirus pandemic, but that he expected that to change over time. He said he has found that parties have been flexible, and been willing to move to video conferencing. He noted that he is unsure if this will survive the crisis, or is only due to the current state of affairs.

South, however, was confident that any reduction in mediation will return to normal levels.

* * *

Committee members then had a lengthy discussion of the issues surrounding the health crisis.  CPR Institute Senior Vice President Helena Tavares Erickson commented that she had provided to members of CPR’s Panels of Distinguished Neutrals a list of services that they could use to mediate effectively during the crisis.

Erickson noted that CPR Dispute Resolution Services offers its neutrals the option of using a secure document exchange, which allows for online text chat in different chat rooms. (For CPR Institute Dispute Resolution filing details, see www.cpradr.org/dispute-resolution-services/file-a-case.)

Meeting participant David Reinman, who is supervisory ADR coordinator of the New York District’s U.S. Equal Employment Opportunity Commission office, reported that his unit has a program that is currently handling all mediation by video or phone. The EEOC also is allowing parties to reschedule if they insist on in-person mediation. Parties who need translators or other special accommodations may invoke applicable proceedings, too.

Tom Valenti asked about screening procedures when conducting in-person mediations. It was noted that many law firms are forcing people to sign waivers stating that they hadn’t been in at-risk places. Given current advisories and shutdowns, however, it’s unclear that such waivers are effective. If parties want to continue doing face-to-face mediation—which has ceased entirely in many shutdown locations for the duration of the emergency–best practice would be to state that they haven’t been in contact with anyone who is infected.

Meeting participants noted, however, such mandatory declarations on disclosing other parties’ infection status could potentially violate HIPAA rules.

Various other online platforms and training options were compared among the participants near the meeting’s conclusion.

* * *

Beyond CPR’s online training event and meeting, and the resources noted, including the new CPR Institute website Resources clearinghouse page, ADR in the Time of COVID-19, others in the legal world and the dispute resolution community have tackled the move online.

For example, the American Bar Association webcasted a panel of experts on continuing with mediations, arbitrations and similar ADR commitments while coping with coronavirus.

The 90-minute March 20 web panel, “ODR in the ERA of COVID-19: Experts Answer Your Questions,” featured panelists including Hamline-Mitchell School of Law Prof. David Larson; online dispute resolution pioneer Colin Rule, who is a Stanford Law School lecturer, and University of Missouri School of Law Prof. Amy Schmitz. It also was hosted on Zoom.

The panelists shared a presentation while providing useful links on a side chat and taking Q&A from the attendees on another window—an electronic version of social distancing that has been repeated, and is rapidly become an ADR standard operating procedure.

The panel provided a list of advice for neutrals wanting to add tech tools to their toolbox.  It focused on accessibility; preparing lists; ensuring a competent approach; accessing live assistance as needed; analyzing online providers (see, e.g., http://odr.info/provider-list/); taking stock of the role for non-verbal communication; assessing whether the disputants will communicate synchronously; confidentiality; considerations for designing an ODR system; ensuring fairness; and ethical considerations.

The ABA panel concluded on ODR resources, providing the following links:

  • Cyberweek 2019; the NCTDR hosts Cyberweek annually at its website.
  • com, a collaborative resource guide.
  • Amy J. Schmitz and Colin Rule, The New Handshake: Where We Are Now (June 27, 2017). International Journal of Online Dispute Resolution 2016 (3) 2; University of Missouri School of Law Legal Studies Research Paper No. 2017-18. Available at SSRN: https://ssrn.com/abstract=2991821

* * *

Muenchinger is a CPR Institute Spring 2020 intern, and an LLM student at the Benjamin N. Cardozo School of Law at Yeshiva University in New York City, focused on the March 30 session discussed in this article.  The section on the CPR Mediation Committee meeting was prepared by CPR Institute Spring 2020 intern Michael Hotz. The section on the ABA seminar was prepared by CPR Institute Spring 2020 intern Federica Romanelli. Alternatives’ editor Russ Bleemer assisted with the research and writing.

 

 

Update Regarding COVID-19 & CPR Mediation Services

The COVID-19 health crisis is causing unprecedented disruptions and damages to the World’s economy and business relationships. A great variety of commercial disputes are surfacing as parties find it impracticable or impossible to perform their contractual obligations. In all likelihood, this crisis will result in a surge of litigation and will also considerably slow down the resolution of pending court cases. In fact, many courts around the world have stopped holding jury trials which will create a considerable backlog for many pending cases. These unprecedented delays should encourage parties to consider alternative dispute resolution.

Last week, we shared with you the launch of a new Dispute Prevention panel, comprised of neutrals who have the experience to facilitate the resolution of a dispute before it becomes a legal conflict. At the same time, we also want to remind you that CPR Dispute Resolution and its Mediation Services are also available to assist businesses in these difficult times. As you know, mediation is a flexible, nonbinding dispute resolution process that uses a neutral third party- the mediator – to facilitate negotiation between the parties and help them find a mutually satisfactory solution to the dispute. The mediator has no authority to impose an outcome on the parties and controls only the process of the mediation itself, not its result. The process is typically faster and more cost-effective than binding dispute resolution processes, such as litigation or arbitration.

CPR’s Mediation Procedures have been drafted by dispute resolution experts and have been used to resolve hundreds of cases over the past three decades. They offer flexibility while providing ground rules for the conduct of the mediation. For example, they provide rules to select the mediator, exchange information between the parties or to preserve confidentiality. All our mediation procedures are available here.

CPR’s Panel of Distinguished Neutrals comprises those among the most respected and elite mediators in the US and around the world. It includes prominent attorneys, retired state and federal judges, academics, as well as highly-skilled business executives, legal experts and dispute resolution professionals who are particularly qualified to resolve all business disputes including those involving multi-national corporations or issues of public sensitivity. Focusing in more than 30 practice areas, CPR’s esteemed mediators have provided resolutions in thousands of cases, with billions of dollars at issue worldwide. Click here for more information about CPR’s Panel of Distinguished Neutrals.

FAQs

How do I commence a mediation with a counterparty with which I have a dispute?  You will need to execute the following mediation agreement with your counterparty:

“We hereby agree to submit to confidential mediation under the CPR Mediation Procedure the following controversy: [Describe briefly]”

What if it is an international dispute? You will need to execute the following mediation agreement with your counterparty:

“The parties hereby agree to submit to mediation under the CPR International Mediation Procedure the following controversy: [Describe briefly]”

What if it is an employment dispute? You will need to execute the model submission agreement in Appendix 1 of CPR Employment Mediation Procedure

What is the cost? 

  • You do not need to pay any filing or administrative fees to use CPR Mediation Procedures. However, if the parties cannot agree on a mediator – or if they would like to benefit from CPR’s expertise in identifying a qualified mediator for the dispute – you will need to pay US$ 1,500 fee (the fee is split among the parties). Click here for more information on how CPR’s experienced case management team assist the parties in selecting their mediator.
  • In addition, you will need to pay the mediator.  Most mediators charge an hourly rate.

What if my dispute is below US$ 500,000?  You may consider using CPR’s flat fee mediation program.  Under the program, the dispute will be mediated for a flat fee of $3,500, to be split among the parties ($2,500 when a CPR member is involved in the dispute).  This amount will entitle the parties to one day of mediation (up to 10 hours, including preparation). Thereafter, an hourly rate of $350 will apply.  Mediators are directly appointed by CPR, after the parties have agreed upon a date and venue.

How do I request CPR’s assistance for the selection of the mediator? To obtain the appointment of a mediator, send your request via email to CPRNeutrals@cpradr.org with the contact information for all parties, including email addresses.  You will also need to pay a $750 non-refundable deposit. Payments can only be accepted via credit cards or wire transfer. Please specify in your cover email how you would like to pay. Click here for more information.

How to I contact the case management team if I have additional questions? Contact Alveen Shirinyans at ashirinyans@cpradr.org or +1.646.753.8230 or Helena Tavares Erickson at herickson@cpradr.org or +1.646.753.8237

Under Consideration: The Supreme Court May Be Ready to Tackle Arbitrability–Again

By David Chung

A Fifth Circuit case on whether a matter was correctly sent to arbitration was distributed for conference at the U.S. Supreme Court for the fifth time over the past two months on Friday, March 20, so the Court could consider hearing it.

The case didn’t appear on this morning’s order list, but that fact alone may be indicative of a lot more arbitration at the nation’s top court.

Any arbitration case before the Court would gain notice on its own in the ADR world.  But the new petition for certiorari is even more noteworthy because the Court had appeared to have decided the issue just a little more than a year ago in its previous term.  Henry Schein, Inc., et al. v. Archer and White Sales, Inc., 139 S.Ct. 524 (2019) (available at http://bit.ly/2YLDkWQ), the Court held unanimously that parties to a contract have the ultimate say in whether to have an arbitrator or a court resolve disputes on questions of arbitrability.

But Schein’s main holding was that a court couldn’t refuse to enforce arbitration because it believed the claims for arbitration were “wholly groundless,” and the nation’s top court sent the case back on remand to the Fifth U.S. Circuit Court of Appeals.

The remand order was a step before actual arbitration, however.  The Court asked the Fifth Circuit to decide whether the contract’s delegation clause really pointed to an arbitrator deciding arbitrability.

The appeals panel looked at the contract again and said it didn’t, and found the decision was for the courts, again.

And the defense petitioned the Supreme Court to hear Schein, an appeal that was filed at the end of January and has not yet made it to a Court conference.  See Philip J. Loree Jr., “Schein Returns: Scotus’s Arbitration Remand Is Now Back at the Court,” (Feb. 19) (available at https://bit.ly/2U8ZumI); see also, Philip J. Loree Jr., “Schein’s Remand Decision Goes Back to the Supreme Court. What’s Next?” 38 Alternatives 54 (April 2020) (available next week at altnewsletter.com and on Lexis & Westlaw; CPR Institute membership access after logging in at www.cpradr.org/news-publications/alternatives).

But while Schein was being relitigated, at the same time and on the same issue about the extent of the reach of the clause that delegates arbitration decision making, The Rams Football Co. LLC v. St. Louis Regional Convention & Sports Complex Auth., No. 19-672, already was in front of the Court for consideration on whether it should be heard.

Closely mirroring Schein, the Rams issue, according to the team’s cert request petition is

Whether the Federal Arbitration Act permits a court to refuse to enforce the terms of an arbitration agreement assigning questions of arbitrability to the arbitrator if those terms would be enforceable under ordinary state-law contract principles in a non-arbitration context.

The case has made it to conference stage, repeatedly, without a denial or a “cert granted” or, indeed, any procedure other than rescheduling. The cert petition is dated Nov. 21, 2019, and the counsel of record is Paul Clement, a Washington, D.C., partner in Kirkland & Ellis who is a frequent participant in Supreme Court cases who, according to the Above the Law blog, argued his 101st case at the Court early this month.  See “Neil Gorsuch’s Frustration With Kirkland & Ellis Partner Paul Clement On Full Display,” Above the Law (March 4) (available at https://bit.ly/39dZS7A).

The Court had denied a stay in the case in October without comment.

Despite a government shutdown, including much of the judicial branch, the Court, after canceling oral arguments indefinitely, has continued its normal business of opinion writing and conferences, out of which come its orders, including cases it agrees to hear, and cases it denies. The Court’s Friday conference resulted in an order list earlier today, but Rams was not mentioned and should be back for consideration in the next conference, scheduled for Friday, March 27, with the latest version of Schein waiting to be listed.

The case is about a dispute between the NFL’s Rams, and three Missouri government entities, the St. Louis Regional Convention and Sports Complex Authority, the City of St. Louis, and the County of St. Louis.

The dispute is over an agreement on the Rams’ use of the former Edward Jones Dome stadium in St. Louis.  The team departed for Anaheim, Calif., after the 2015 season amidst a storm of controversy over owner E. Stanley Kroenke’s remarks about St. Louis’s viability as an NFL-hosting city. The Rams sought arbitration over whether it should pay damages in the wake of the team’s move to become the Los Angeles Rams for the second time in the team’s existence.

The agreement included an arbitration clause that incorporated terms by reference, stating that all disputes would be conducted “in accordance with the most applicable then existing rules of the American Arbitration Association.”  Those rules send the question of who decides whether a case should be arbitrated to an arbitrator, not a court.

The petitioner, the Rams, asserts that the key Missouri appellate court decision in a series of cases that include rulings by the state supreme court, should have simply “‘respect[ed] the parties’ decision as embodied in the contract’ by recognizing that it has ‘no power to decide the arbitrability issue.’” Petition for Writ of Certiorari citing Henry Schein, 139 S. Ct. at 528 (brief available at https://bit.ly/2U85jAG).

The Rams’ petition claims the “clear and unmistakable” test of whether the parties intended for an arbitrator, rather than a court, to decide whether an arbitration agreement should be arbitrated was too strict.  It contends the standard applied by the appellate court violated “an application of equal-footing principles,” which the Supreme Court requires under the Federal Arbitration Act—that is, that arbitration contracts are treated the same as other contracts.

While the Rams contend the parties clearly and unmistakably agreed to arbitrate under the then-existing AAA rule, the petition argues that the incorporation of the rule sending the arbitrability question to the arbitrator should have been recognized by state court to keep the arbitration contract on an equal footing with other contract principles.

The state respondents strongly dispute that the Missouri appellate court ignored the Court’s equal-footing principle.  It also asserted the parties could have never unequivocally agreed to arbitrate the issue because the AAA rule did not have the arbitrability provision when they signed the contract.

While conceding the applicable version of AAA rule confers power to the arbitrators to decide arbitrability, the respondents claim the incorporation principle is irrelevant to the case.  Instead, they argue that “[p]ursuant to fundamental Missouri contract law, the parties must agree to all essential terms of an agreement at the time of contracting.”  (Respondent’s Brief in Opposition to Petition for Writ of Certiorari (available at https://bit.ly/2U8ZumI).

Thus, “there must be an actual agreement to delegate at the time of contracting.” Id.

Despite the respondents’ denial of a division among federal and state courts on the applicable standard, the Rams’ petition claims that some state courts, including Missouri, are requiring an extraordinary degree of clarity for the “clear and unmistakable” test, which the petition says is contrary to how every federal court addresses the issue.

The petitioner urges that the Court provide guidance regarding the clear and unmistakable test, which it says is critical since the respondents’ position not only defies the FAA’s equal footing principle but also has been the subject of repeated requests for Court clarification, citing four cases the Court declined to hear between 2014 and 2018. The petition also notes that the situation has seen “every federal court resisting special rules disfavoring arbitration and only state courts on the anti-arbitration side of the dispute.”

Scotusblog’s case page, available at https://bit.ly/2QANwjk, contains the Rams’ cert petition, the respondent’s brief in opposition, and the Rams’ reply

* * *

The author is a CPR Institute Spring 2020 intern.  Alternatives’ editor Russ Bleemer assisted with the research.

 

CPR COVID-19 Update

The COVID-19 virus has affected all aspects of our daily lives, and we at CPR continue to monitor developments that affect our staff, members, neutrals and those to whom we provide services. We are assessing the situation daily and monitoring all recommendations from the World Health Organization, U.S. Centers for Disease Control and Prevention, and state and local authorities. We encourage you to do the same.

SAFETY PRECAUTIONS

CPR has communicated with the appropriate parties about best practices and recommended safety guidelines, both with regards to our personal habits and CPR’s physical office space.

We do ask that our staff and any visitors exercise caution and good judgment and not come into our office when they are sick or experiencing symptoms such as runny or stuff nose, fever, cough, shortness of breath, sore throat, body aches, chills or fatigue. If there is any doubt, we advise erring on the side of caution and would be happy to assist via phone or other (e.g., videoconferencing) means.

CPR PROGRAMMING AND EVENTS

While some events scheduled for the near term are, out of an abundance of caution, in the process of being rescheduled, others have already been seamlessly transformed to online proceedings. For some time now, all CPR committee meetings already have offered a virtual component (i.e., with video or audio conferencing) so that programming will not change for the immediate future – and there are some great meetings scheduled, on timely topics.

For example, next week our Mediation Committee will be hosting a panel discussion on comparisons between domestic and international mediation. Our panelists have updated their presentation to include a discussion on how mediators are adapting to the coronavirus outbreak in the United States and abroad. We are also going to hold our Employment Committee’s Post-Epic Systems panel discussion at the end of March via video conference as well. Given that CPR’s membership spans the world, our members are able to participate remotely – and robustly – in committee programming. 

BUSINESS AND DISPUTE RESOLUTION SERVICES CONTINUITY

CPR has planned and prepared for situations such as these. Our New York office remains open and operational. However, should the need arise, our staff is prepared to work securely and remotely.

In the event it becomes necessary for us to temporarily close our physical office, rest assured that CPR Dispute Resolution can and will operate virtually, offering our full suite of dispute prevention and resolution services without interruption.

“ALTERNATIVE ADR” – ONLINE AND OTHER RESOURCES

As more and more companies restrict travel and communities restrict travel and large gatherings, questions have also arisen as to alternatives to face-to-face arbitration hearings or mediations. We urge parties and neutrals to discuss these issues as they arise, and CPR has taken steps to help parties and neutrals address these challenges. Specifically, we have arranged for CPR’s neutrals to have access to a secure online platform for the management of mediations and single arbitrator cases.

We also encourage anyone utilizing video or online venues or processes to review The ICCA-NYC Bar-CPR Protocol on Cybersecurity in International Arbitration (2020 Edition).

Please let us know if you have any questions or concerns, or if there is an issue here we have not addressed. We are all part of the same dispute prevention and resolution community, and look forward continuing to support one another as we navigate this situation, together.  Please stay safe and healthy.

Update on CPR’s Employment-Related Mass Claims Protocol

Recently, there have been reports in the news relating to the International Institute for Conflict Prevention and Resolution’s (CPR) Employment-Related Mass Claims Protocol (Protocol).  We thought some background might be useful.

As more and more mass employment arbitration claims are filed around the United States, arbitral institutions have become increasingly aware of the tremendous challenges they face when trying to bring timely – and comprehensive – resolution to these claims.  CPR responded to these challenges by borrowing techniques that had proved successful in the resolution of other mass claims and applied them to the employment space with the goal of facilitating a comprehensive resolution of mass employment claims for all parties involved. The result was the Protocol.  In developing its Protocol, CPR was aware that, in order to be successful, it was imperative that the features of the Protocol be balanced and designed to facilitate global resolution.

As noted by former Southern District of New York district court judge, Shira Scheindlin, a veteran of mass claims matters, in connection with her appointment as the Administrative Arbitrator under the Protocol:

This protocol offers advantages, not only to claimants, whose cases will likely be resolved at the defendant’s cost and far more quickly than they would be in court, where mass claims often take years to resolve, but also to defendants, with the greater odds it offers of reaching a prompt global resolution in a more cost-effective manner than the courts would offer.  And, most unusually, the defendant-employer will release an individual from mandatory arbitration if no global resolution is reached and the individual employee prefers a court proceeding to arbitration.

The terms of the Protocol itself speak to its innovative approach to facilitating resolution in the most efficient way possible.  The initial phase of the Protocol provides for “test” arbitrations (10-20) to first proceed on an accelerated track followed by a mediation process that encourages resolution of all claims.  If that process is unsuccessful in identifying a mediated solution, the Protocol allows claimants to opt-out of the entire arbitration process.  Not only does this opt-out allow for employees to pursue their individual claims in court, but it also allows for the possibility that these claimants might, with court approval, be able to proceed collectively in a class action.

The objective of the initial phase of the Protocol is to resolve all the cases as a whole as quickly as possible.  During this initial phase, the non-test cases are paused with all rights preserved in order to give the parties a chance to explore a global resolution. CPR believes that this procedure will actually encourage faster overall resolution of mass claims – especially when compared to the substantial delay that employees inevitably face while waiting for appointment of an arbitrator for, and the proceedings on, their claim when their claim is one of hundreds or thousands of mass arbitrations filed at the same time. If a mediated solution is reached, employees have the option of accepting that resolution or proceeding with individual arbitrations.  In the case of individual arbitrations, each employee – and the employee alone – nominates the arbitrator from a Master List of arbitrators provided by CPR, and the employer pays all fees – including for the arbitrators, the mediator, and the administrator.

The Protocol gained attention in the press recently after DoorDash adopted the Protocol in agreements with its workers and a dispute arose as to where DoorDash should arbitrate its workers’ claims that had previously been filed before the AAA.  In the context of that dispute in the case of Abernathy v. DoorDash, No.19-CV-07545 (N.D. Cal.), it has been suggested that CPR’s work on the Protocol may have been guided unfairly by counsel for Respondent DoorDash.  CPR disagrees with this characterization.

As made plain by the discovery already undertaken of CPR in the Abernathy case, including a deposition of CPR’s President & CEO, it was CPR, not counsel for the employer, who conceived of, wrote and controlled the Protocol.  This is underscored by the inclusion in the Protocol of the provision allowing claimants to opt out of the arbitration process and proceed in court – a provision disfavored by counsel for DoorDash. An examination of the Protocol itself shows that its provisions favor neither side; rather, the Protocol was intended to – and does – provide for an innovative and balanced solution for resolving mass employment claims for all parties involved.

With respect to interactions between CPR and counsel for DoorDash, the deposition testimony also discusses, as CPR previously explained in a letter to the Court dated December 12, 2019 (publicly available at Docket Entry 137), that counsel for the employer reached out to CPR last year to express concern over options for administration of a mass of claims and the fee structures being imposed and asked whether CPR could offer an alternative fee schedule for administering future arbitrations.  Rather than just focusing on alternative fees, CPR took the opportunity to try and develop an innovative and fair process for resolving these claims for all parties involved.  As a result, CPR developed the Protocol based on its own experiences in other mass claims areas.  CPR then sought and considered input on the Protocol from a variety of sources, including counsel for DoorDash — who was contemplating applying the Protocol in future contracts with its workers. CPR sought input from labor and employment counsel with experience representing both management and employees on an individual and class basis, and attorneys with mass claims and complex commercial litigation and arbitration experience, some of whom are also prominent arbitrators and mediators, including one of the foremost experts in facilitating the resolution of mass claims. CPR also received input from particular members of its Board of Directors, who have served as advisors to ALI’s Restatement of Employment Law and who have chaired the New York Chief Judge’s Advisory Committee on Alternative Methods of Dispute Resolution.

CPR developed the Protocol for the broader marketplace, not for any particular matter or party, and did so in the hopes that it would facilitate resolution and help solve for many of the challenges facing employees and employers dealing with mass individual employment arbitrations. We invite you to review the features of the Protocol for yourself.  CPR believes its Protocol will allow for the efficient, fair and balanced administration of employment-related mass claims for both employees and employers.

About CPR

CPR is an independent nonprofit organization formed in 1977 to, among other things, identify alternatives to litigation and ways to prevent and resolve legal conflicts more effectively and efficiently.

The CPR Institute is a think tank that has long brought leadership to the improvement of conflict management, as exemplified by work such as:

  • The Model Rule for the Lawyer as a 3rd Party Neutral and the Provider Principles developed jointly with Georgetown University
  • The Model Procedures for Mediation and Arbitration of Employment Disputes developed by a Committee of lawyers representing employees and employers as well as academics and neutrals
  • CPR’s Master Guide to Mass Claims Facilities compiled by a Commission co-chaired by Kenneth Feinberg and Deborah Greenspan
  • CPR’s book Cutting Edge Advances in Resolving Workplace Disputes published together with Cornell’s Scheinman Institute

CPR Dispute Resolution is a provider of dispute resolution services and will be administering the Employment Related Mass Claims Protocol to applicable arbitrations, along with its Panel of Distinguished Neutrals, who will be relied upon to mediate and arbitrate these claims.

Schein Returns: Scotus’s Arbitration Remand Is Now Back at the Court

By Philip J. Loree Jr.

A party fighting to arbitrate under its contract has sought U.S. Supreme Court review of a Fifth U.S. Circuit Court of Appeals case holding that an injunctive action carve-out clause effectively negates the parties’ arbitration contract delegating the decision whether the case should be arbitrated to an arbitrator, not the courts.

If the Court agrees to accept the case, which is the subject of the Jan. 30 petition, it would be the second time in about two years that the nation’s top Court has heard the case.

The decision challenged in the cert petition, Archer and White Sales Inc. v. Henry Schein Inc., et al., No. 16‐41674 (5th Cir. Aug. 14, 2019) (available at http://bit.ly/33Cb78g) (“Schein II”), was a remand of the U.S. Supreme Court’s opinion of a year ago, Henry Schein Inc. v. Archer & White Sales Inc., 139 S. Ct. 524 (Jan. 8, 2019) (available at https://bit.ly/2CXAgPw) (Schein I).

There were several important 2019 cases concerning the application and effect of what are commonly referred to as “Delegation Clauses,” “Delegation Provisions,” or “Delegation Agreements.” These clear and unmistakable undertakings by parties to submit arbitrability issues to arbitration usually are expressly set forth in an arbitration agreement. Other times they are contained in arbitration rules that the parties incorporate by reference into their agreement.

Much of the controversy in the Delegation Agreement cases centers on whether the terms of the arbitration agreement should define or circumscribe the scope of a Delegation Agreement–or even effectively negate it.

These cases have conflated the question of who gets to decide whether an issue is arbitrable with the separate question of what the outcome of the arbitrability dispute should be, irrespective of who decides it.

The most important of the recent cases is Henry Schein Inc. v. Archer & White Sales, Inc., which for discussion purposes is conveniently bifurcated into its two most prominent components, Schein I and Schein II.

Schein I

In Schein I, the Supreme Court, in a 9-0 decision, held that where parties have clearly and unmistakably agreed to arbitrate arbitrability disputes, courts must compel the process even if the argument in favor of arbitrability is “wholly groundless.” Schein I, 139 S.Ct. at 528-531.

The Schein I Court vacated an order and judgment of the Fifth Circuit, which held that, even assuming the parties entered into a Delegation Agreement, the arbitration proponent was not required to submit to arbitration the question whether a dispute concerning injunctive relief was arbitrable because that arbitrability dispute was, according to the Fifth Circuit, wholly groundless.

The Schein I Court remanded to the Fifth Circuit the question whether the parties entered into a Delegation Agreement, an issue that the Fifth Circuit had left open, but which had to be addressed in light of the U.S. Supreme Court’s decision abrogating the so-called “wholly groundless exception.”

And that remand case is Schein II.

Schein II

In Schein II, the Fifth Circuit set out to determine whether the parties had clearly and unmistakably agreed to submit arbitrability disputes to arbitration. The essential facts pertinent to this question can be distilled down to these:

  1. Party A’s and Party B’s contract contained an arbitration agreement, which featured a “carve-out” for certain claims, including “actions seeking injunctive relief”: “Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property of Party B), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association [the “AAA”].”
  2. Party A commenced an action against Party B that sought, among other things, injunctive relief, which A said was outside the scope of the arbitration agreement.
  3. Party B said that A’s arbitrability argument had to be submitted to arbitration because the parties clearly and unmistakably delegated arbitrability questions to the arbitrator by incorporating AAA Commercial Arbitration Rules into their contract, including Rule 7 of those rules.
  4. Rule 7(a) of the AAA Commercial Arbitration Rules provided:

(a) The arbitrator shall have the power to rule on his or her own jurisdiction, including any objections with respect to the existence, scope, or validity of the arbitration agreement or to the arbitrability of any claim or counterclaim.

On remand, the Fifth Circuit observed that under circuit precedent, incorporating arbitrator provider rules that clearly and unmistakably require arbitration of arbitrability constitute clear and unmistakable evidence of an intent to arbitrate arbitrability. The Court therefore recognized that the parties had entered into a Delegation Agreement.

But here, stated the Fifth Circuit, the “placement of the [injunctive action] carve-out . . . is dispositive[,]” and “[w]e cannot rewrite the words of the contract.”

“The most natural reading of the arbitration clause,” said the Court, is “that any dispute, except actions seeking injunctive relief, shall be resolved in arbitration in accordance with the AAA rules.”

The agreement “incorporates the AAA rules” and therefore delegates arbitrability “for all disputes except those under the carve-out.” (Emphasis is the Fifth Circuit’s.) Because of “that carve out,” wrote Fifth Circuit Judge Patrick E. Higginbotham for the unanimous three-judge panel, “we cannot say that the Dealer Agreement evinces a ‘clear and unmistakable’ intent to delegate arbitrability.”

Accordingly, the Fifth Circuit held that the parties did not clearly and unmistakably agree to delegate the arbitrability decision and affirmed the district court’s denial of the arbitration proponents’ motions to compel arbitration.

On Aug. 28, 2019, the arbitration proponent moved for rehearing en banc. On Dec. 6, the Fifth Circuit denied the motion for rehearing.  That’s when the proponent became the petitioner at the U.S. Supreme Court. Henry Schein Inc., a Melville, N.Y.-based dental equipment distributor, on Jan. 24 obtained from the Supreme Court a stay of litigation pending its petition for certiorari, which it filed on Jan. 30.

You can download a copy of the petition  here. A response from Archer & White Sales, a Plano, Texas, distributor, seller, and servicer of dental equipment, is due March 2.

Schein II was Wrongly Decided

This author believes Schein II was wrongly decided. In “Back to SCOTUS’s Schein: A Separability Analysis that Resolves the Problem with the Fifth Circuit Remand,” 37 Alternatives 131(October 2019), this author argued that Schein II can be reasonably interpreted to mean either:

(a) the parties did not clearly and unambiguously agree to arbitrate any arbitrability issues; or

(b) the parties’ agreed to arbitrate only arbitrability disputes about matters that fall within the scope of the arbitration agreement.

The first interpretation would negate the parties’ incorporation of AAA Commercial Rule 7. The second interpretation would mean that the parties clearly and unmistakably agreed to arbitrate only questions that ask whether a matter that is at least arguably within the scope of the arbitration agreement, but clearly outside the scope of the carve-out, is arbitrable.

Because the presumption in favor of arbitrability deems such matters to be arbitrable as a matter of law, the second interpretation would mean that the parties agreed to arbitrate only arbitrability questions that were not only relatively rare, but also legally uncontroversial.

That makes little sense and would mean the parties’ incorporation of AAA Commercial Rule 7 was of little or no practical significance or effect.

The article proposes a solution to the interpretative problem that a Schein II-Type analysis creates, and under which courts interpret arbitration-agreement terms as overriding or defining the scope of Delegation Agreements that are made part of those arbitration agreements.

It argues that courts instead should use the analytical framework of the separability doctrine—first espoused in Prima Paint Corp. v. Flood & Conklin Mfg. Co., 388 U.S. 395 (1967), and applied to Delegation Agreements in Rent-a-Center West Inc. v. Jackson, 561 U.S. 63 (2010)—to interpret Delegation Agreements as being independent from the arbitration agreements in which they are contained, and not graft upon those Delegation Agreements scope limitations that are based on the terms of the arbitration agreement containing the Delegation Agreement.

It explains in detail why using a separability-based analytical model has a number of advantages over the Schein II approach in that it gives full effect to the terms of the separate arbitration and Delegation Agreements, gives effect to the separate but related purposes that each of those agreements serves, and otherwise helps ensure that the parties’ legitimate contractual expectations are met.

The author hopes that the Supreme Court will grant certiorari, reverse, and clarify how the lower courts should address cases where parties agree to a broad arbitration agreement, incorporate by reference into that agreement a broad, unqualified, Delegation Agreement, but except from the scope of their arbitration agreement certain types of disputes.

There are many other reasons why the author believes SCOTUS should hear and reverse Schein II, but a thorough discussion of them must await another article or post.

The whole point of Schein I was that the merits of an arbitrability question has no bearing on the question of who gets to decide that question. Schein II does not comport with Schein I and should be reversed.

* * *

Philip J. Loree Jr. is a co-founder and partner at the New York law firm, Loree & Loree. The opinions expressed in this post are his own, and not those of the blog publisher, the CPR Institute.

 

 

 

Progress Report: New York Courts’ ‘Presumptive ADR’ Settles In

By Anne Muenchinger and Russ Bleemer

The New York City Bar Association hosted on Wednesday a panel discussion aimed at assessing the progress in the implementation of a new “Presumptive ADR” initiative in the New York State Court System.

The push for conflict resolution processes ahead of litigation is part of New York State Chief Judge Janet DiFiore’s Excellence Initiative, seeking to reduce litigation costs and empower parties by introducing mediation early in the process and increasing settlement rates. See Savannah Billingham-Hemminger, “Update: ADR Breakfast on New York State’s Presumptive Mediation Implementation,” CPR Speaks (July 16, 2019) (available at http://bit.ly/38GeCfx).

Since last summer, thanks to the concerted efforts of administrative and supervising judges and court staffs, as well as ADR practitioners, courts have begun to carry out this initiative by expanding current ADR programs and designing new ones. A May 2019 announcement (see press release at http://bit.ly/32lhjkq) tasked the courts with rolling out “local protocols, guidelines and best practices” by September, re-focusing a task force report on a broader “presumptive ADR” from the report’s focus on mediation.

Administrative judge panelists at the bar association continued that emphasis, discussing a wide variety of ADR processes that courts across the board are or will be deploying for party use.

The panel began by outlining the progress over the past year in their respective courts, followed by a broader discussion on challenges the system is facing with broadening and implementing presumptive ADR.

Judge Anthony Cannataro, the administrative judge of the New York City civil courts, began the discussion by outlining some of the ADR processes traditionally used in civil court, notably binding arbitration and evaluative techniques.

He emphasized a new role that Community Dispute Resolution Centers—the local nonprofits with which the state court system partners to provide mediation, arbitration and other ADR options as a court alternative–are taking on by providing the infrastructure needed to address the great influx of cases that are now being sent to mediation.

Cannataro reported that mediation has been remarkably successful in one category of cases traditionally challenging for judges: those where a party has no representation.  Those pro se cases often have emotions running high over personal issues.

He also pointed to the successful use of judicial hearing officers in cases that are transferred from the Supreme Court (the Supreme Court is New York state’s trial-level court), as well as the increased use of settlement conferencing, and accelerated trial judgments.

Cannataro said he anticipates the need for a strong mentorship program to train new mediators, a greater use of early neutral evaluations, and the development of mass settlement conferences. The conferences would provide speedier resolution for high-volume practices, such as no-fault insurance cases, where thousands of filings presenting almost identical elements could be resolved at once.

The implementation of such a program requires negotiation with larger insurance carriers and providers in order to take a statistical value approach, which may enable a more systematic and speedier resolution, and a significant relief for crowded dockets.

For panel member Judge Jeanette Ruiz, who is administrative judge of New York City’s family court, the new initiative move is much more than a shift toward ADR.  She told the audience of about 100 that it is an opportunity to transform certain aspects of the family law practice that have historically not received much attention.

Child custody practice—particularly, custody visitation cases–Ruiz reported, is an area that will likely benefit from greater mediation use, as exemplified by the success of a small pilot program recently launched in Queens.

One of the key features for Judge Ruiz has been the development of a detailed screening process to determine which cases would better be resolved through ADR processes. This screening, which covers all parties to a dispute, divides cases along three tracks: cases to be sent to mediation, to structured conferences for some of the more complex cases, and those which are best resolved via expedited trial.

This determination occurs according to the presence of certain factors, including domestic violence, mental illness, substance abuse, and a history of litigious behavior. Cases involving these factors will likely fall into the third track.

Ruiz emphasized the importance of engaging the legal community in the transformation in the court system. A planning committee has been set up in order to collect data, get feedback and to remain in touch with community members in order to ensure a successful transition into an ADR-oriented system.

Justice Deborah Kaplan, administrative justice of New York County’s Supreme Court, expressed her enthusiasm for this transition, citing the New York court system benefits from more ADR programs throughout the state’s 62 counties.

She said she believes that efficiency–one of the goals sought through the initiative’s implementation–would be achieved in curtailing discovery to that sufficient for mediation. This will be accomplished in part through strict time limits for document production, during which a mediator would be assigned in order to schedule an initial session within 30 days of filing.

In addition, automatic early referral is a key component to the program’s success, as the parties are encouraged to think about the issues that set the case in motion.

Justice Kaplan cited a laundry list of current ADR programs, including judicial mediation programs, early settlement malpractice, matrimonial early mediation, and “skilled matrimonial early neutral evaluation.” In addition, many programs are currently undergoing expansion, including presumptive matrimonial mediation, the tort neutral evaluation program, tax certiorari cases in which property owners can challenge a real estate tax assessment, and a successful presumptive mediation pilot program for cases in New York County’s non-commercial division–cases involving less than $500,000.

She also discussed programs for summary jury trials in automobile cases and dispute resolution processes for asbestos matters, where Kaplan said more than 3,000 cases were invited to a special settlement day which she suggested would be repeated.

The panel generally agreed that summary jury trials should be expanded, but moderator John Kiernan warned that commercial-side efforts to increase SJTs had been disappointing, mostly due to party resistance.

Justice Kaplan also emphasized the importance of screening from ADR processes in matrimonial cases involving domestic violence or power imbalances, which she said is done by an outside agency.

Finally, she underlined the importance of making public a diverse roster of ADR practitioners—a searchable roster, said Kaplan, that will allow a party to find a neutral directly “so that you will never have to come visit us in the court.”

Moderator Kiernan, a New York-based Debevoise & Plimpton partner who headed the task force that issued the report that the court system used for the presumptive ADR initiative, responded that “the speed of change in the courts is amazing.”

A discussion including all panel members covered concerns about a lack of facilities, significant implementation time requirements, and a severe lack of multilingual neutrals as the challenges in the shift toward ADR moves forward.

Diversity was an important topic of discussion, in response to an audience inquiry.  Lisa Denig, Special Counsel for the ADR Initiative for the state’s Office of Court Administration, spoke at length on the issue, noting that the increased ADR use has ignited a renewed effort to recruit a diverse group of new mediators in order to better address the disputants’ needs. Several projects are in the works to provide better access to mediation training programs, she said.

Another important issue is neutrals’ compensation. Currently, parties are provided with a free 90-minute session, beyond which they may continue for a fee. This practice is particularly important in order to encourage parties to make use of these programs and to encourage higher settlement rates.

Denig acknowledged the need for discussion on this issue, which she said will intensify as programs are up and running. She noted that mediators are paid in successful programs in other states.

Panelist Lisa Courtney, the Office of Court Administration’s statewide ADR coordinator, pointed out that family court mediators already are paid, and a current goal is adding more languages capabilities. She discussed the CDRC’s “gold standard” training as essential in building mediation programs.

Kiernan—who was chairman of Alternatives’ publisher, the CPR Institute, when he organized the task force as part of his initiatives, at the same time, as the NYC Bar Association president–said that the system can expand to “tens of thousands” of mediation cases with existing neutrals and volunteers.  But he said that to get to “hundreds of thousands of cases,” programs in New Jersey and Florida needed thousands of mediators.  “You need paid mediators,” he said.

Kiernan said the court ADR programs ultimately are effective, with “staggeringly low” opt-out rates.

Audience member Roger Juan Maldonado, a litigation partner in New York’s Smith, Gambrell & Russell, LLP. who is the current NYC Bar Association president, returned to the issue of representation, urging the panel to consider the issue of appointed counsel for pro se litigants in light of the huge numbers of such cases.

Panelist Judge Cannataro said he believes all court processes are better with representation on both sides, but suggested that the courts had to address the cases as they come. Cannataro assured Maldonado and the audience that the court system would examine where ADR works with and without representation, and will monitor closely the outcomes.

Finally, the topic turned to a unification of ADR rules for the future. While the task force report initially proposed creating a set of rules, the Office of Court Administration and Chief Administrative Judge Lawrence Marks made the decision not to issue them at the outset. (For more, see “‘Presumptive Mediation’: New York Moves to Improve Its Court ADR Game,” 37 Alternatives 107 (July/August 2019) (available at http://bit.ly/2GbCWdK).

They felt it would be best to let the programs develop and evolve so that future rules would be better adapted to the multiplicity and diversity of ADR programs that were in development last summer for the September 2019 launch.

“Many were surprised about that,” said John Kiernan, but the courts statewide so far have developed “great new plans and programs without it.” He added that he expected uniform statewide rules would emerge eventually.

Lisa Denig agreed, and discussed development of a standard-setting ADR protocol in the state’s matrimonial courts, though she said that she expects it will take some time to develop it as the courts implement their local programs.

For the moment, quality control will be measured by an ADR coordinator and screening processes for newly trained mediators, though Judge Anthony Cannataro said that good mediators are instrumental in recognizing cases that should not be mediated.

 

Anne Muenchinger is a CPR Institute Spring 2020 intern, and an LLM student at the Benjamin N. Cardozo School of Law at Yeshiva University in New York City. Russ Bleemer is the editor of Alternatives.

Tuesday’s SCOTUS Argument: Can Non-Signatories Compel Arbitration in the United States Under the New York Convention?

By Doo-Won ‘David’ Chung and Russ Bleemer

When a party files for arbitration under a contract but it is not a signatory to the contract, sparks can fly.

On Tuesday, the U.S. Supreme Court heard from both sides that non-parties can compel arbitration under the Federal Arbitration Act in oral arguments for this term’s sole arbitration case, GE Energy Power Conversion France SAS v. Outokumpu Stainless USA LLC, No. 18-1048.

But the arbitration falls under the international Convention on the Recognition and Enforcement of Foreign Arbitral Awards, best known as the New York Convention, adopted and implemented as the FAA’s Chapter 2 in the United States.

And on its surface, it appears the treatment may be different.  The Eleventh U.S. Circuit Court of Appeals rejected nonparty GE Energy’s motion to compel arbitration, focusing on the first of four treaty requirements for compelling arbitration— “there is an agreement in writing within the meaning of the Convention.” Outokumpu Stainless U.S. LLC v. Converteam SAS, 902 F.3d 1316, 1325 (11th Cir. 2018) (available at http://bit.ly/2E1eSc0).

The Supreme Court agreed to hear the case last year on whether the New York Convention allows a non-signatory to an arbitration agreement to compel arbitration based on the doctrine of equitable estoppel. See “The Friends Speak: Here’s What Scotus Will Decide in the GE Energy International Arbitration Case,” 38 Alternatives 2 (January 2020) (available at http://bit.ly/2v2pJ3Z).

The Court’s strong historical preference for arbitration appeared to be a tipoff that it took the case to reverse.  But early in the opening argument by GE Energy’s attorney, Shay Dvoretzky, a Washington, D.C. partner in Jones Day, Chief Justice John G. Roberts Jr. showed a concern he focused on repeatedly, that being able to force arbitration against a party who never consented would be inconsistent with “one of the central propositions of our arbitration precedents that arbitration is based on agreements.”

Dvoretzky had urged the Court to permit the use of the equitable estoppel doctrine as part of a group of methods by which nonparties can invoke an arbitration agreement under the New York Convention. Respondent Outokumpu contended that the Convention requires a signed arbitration contract by the party invoking arbitration.

Roberts seemed to share reservations about nonparties.  Responding to his own hypothetical for Dvoretzky, the chief justice said, “here somebody who never agreed to arbitration is being forced into arbitration, even though he has a clear right to take his dispute to court.”

While admitting that arbitration is a matter of consent, Dvoretzky argued that the consent by the respondent was exhibited by the contract’s existence with its arbitration provision, even if it didn’t name the party.  The scope of that agreement, at least in the context of FAA Chapter 1, had been determined Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 630–31 (2009) (available at http://bit.ly/3442FxB), which extends the agreement’s use to nonparties under a variety of doctrines, without restriction to signatories.

The case arose out of a dispute between respondent Outokumpu, a Calvert, Ala., steel manufacturer, and a subcontractor, GE Energy, which agreed to supply nine motors to run three steel mills which failed.

While the contract between Outokumpu and its construction general contractor included an arbitration agreement, subcontractor GE Energy was not yet selected, according to Dvoretzky, and not a signatory.  When Outokumpu filed suit against GE Energy in a state court, the subcontractor removed to federal court and moved to dismiss and compel arbitration under the contract.

Alabama’s Southern District federal court granted GE Energy’s motion to compel arbitration and dismissed the action, but on appeal, the Eleventh Circuit reversed.

The appeals court acknowledged that, for domestic arbitration agreements, equitable estoppel allows the non-signatory to enforce the arbitration clause under Arthur Andersen.  But the circuit court distinguished international arbitration agreements, and held “to compel arbitration, the [New York Convention] requires that the arbitration agreement be signed by the parties before the Court or their privities.”

Shay Dvoretzky opened his argument on GE Energy’s behalf by noting that the New York Convention is silent about enforcement by non-signatories.  “That silence is consistent with the Convention’s design, which sets a floor, not a ceiling, for enforcing arbitration agreements and awards,” he explained.

According to Dvoretzky, since the Convention doesn’t say states can’t do more than what the Convention requires, the rest is left to the states’ domestic arbitration laws. Dvoretzky further contended, “Other contracting states are close to unanimous that the Convention does not preempt domestic law allowing non-signatory enforcement.”

Justice Elena Kagan told Dvoretzky, “It seems odd that Congress would have passed the implementing legislation on the view that another contracting state could compel arbitration without any consent whatsoever.”

“I think this goes to the core question of what the Convention is trying to do,” countered Dvoretzky, adding, “The Convention is trying to set forth minimum standards by which other countries will recognize and enforce arbitration agreements.”

After Justice Neil Gorsuch seemed satisfied by Dvoretzky’s response that there was nothing in the New York Convention preventing the use of the equitable estoppel doctrine in matters under the treaty, Kagan jumped back into the discussion, saying she agreed with the chief justice:

If you’re talking about an alter ego or something like that, or a successor in interest, maybe that person counts as a party, even though it is not the signatory but there is some limit.  . . .

[S]o if it’s a matter of voluntary consent, and everybody thinks that that’s what arbitration is, shouldn’t we read the parties to be, you know, the parties? Nobody else.

Dvoretzky responded with a return to Arthur Andersen. “Certainly under domestic law it is understood to be a matter of voluntary consent,” he said, “but the Court saw no issue with the possibility after an equitable estoppel theory that would allow a nonparty to enforce.”

Jonathan Y. Ellis, Assistant to the Solicitor General whose amicus argument supported GE Energy, explained that the New York Convention’s role is to assist courts in the recognition of international arbitration agreements, but it doesn’t provide a comprehensive set of arbitration rules. He argued that the Convention presumes validity of arbitration agreements, and doesn’t speak to agreements’ scope.

Justice Sonia Sotomayor leaned toward GE Energy’s case during Ellis’s argument, but pushed for a rule. She appeared to agree that there are bases for the argument that contracting states can pick who the parties are, but she also said that there should be limits.  “What’s the limiting principle of equitable estoppel?” she asked, adding, “It can’t be every single type of equitable estoppel is okay.”

She added that if GE is contemplated by the contract as a supplier, the matter “seems like a fairly straightforward case to me.”

Ellis responded that the New York Convention has standards on whether an arbitration agreement was reached between the parties, and signatory states’ limits on recognizing “other types of arbitration agreements” needs to be satisfied.  But, he said he didn’t think the Convention “can be read to impose those limits.”

Jonathan D. Hacker, a partner in Washington D.C.’s O’Melveny & Myers LLP, disagreed with GE Energy’s Convention interpretation in his argument on behalf of the steelmaker Outokumpu. Instead, Hacker asserted that the Convention makes it a ceiling—declaring that a written agreement by the parties is necessary to enforce international arbitration agreements.

After a hypothetical by Justice Stephen G. Breyer that allowed a successor party to arbitrate a contract via domestic law, Hacker contended that allowing domestic law to decide who gets to enforce arbitration “creates a huge problem under the Convention because then the states can begin subjecting parties to arbitration” even without consent, which he said is against the Convention’s requirements.

In closing, Hacker argued that “extension of an arbitration agreement to non-parties” is “supposed to be the exception that you almost never see,” and if GE Energy’s interpretation is adopted, “essentially all subcontractors would suddenly be able to arbitrate, even absent a written agreement.”

The Supreme Court’s decision, expected by the end of the term in June, may be crucial not just for arbitration practitioners, but also for parties engaged in cross-border transactions that involve performance by non-signatories.  If the Court affirms the circuit court’s decision, it may create the need for more detailed participation of potential parties, as signatories, for contracting.

* * *

Tuesday’s GE Energy arguments were the second of two for Chief Justice Roberts who, after the case concluded, walked across the street to the U.S. Capitol from the Court to begin his new second job presiding over the U.S. Senate impeachment trial of President Trump.

* * *

This post is based on the transcript of the arguments, posted Tuesday afternoon, and is available on the Court’s website at http://bit.ly/2RD1JMG.

Chung, a law student at Benjamin N. Cardozo School of Law at New York’s Yeshiva University, is a 2020 spring semester CPR Intern; Bleemer edits Alternatives for the CPR Institute at altnewsletter.com.

CPR Tribute to Peter Kaskell

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By Russ Bleemer

Longtime CPR Institute senior vice president Peter F. Kaskell, who spearheaded the translation of seminal commercial ADR theories into everyday dispute management processes, died Dec. 11 at 94. He lived in West Redding, Conn.

Kaskell joined the CPR Institute in 1983, soon after it was founded, following a lengthy legal career, mostly in-house.  He devoted two decades at the New York nonprofit to devising ADR procedures and leading initiatives that produced still-vital versions ADR tools.

“Peter paved the way for CPR Institute’s committees and task forces continued work on identifying better ways to resolve legal conflict,” said CPR President and Chief Executive Allen Waxman, “producing first-generation, fundamental processes in prominent areas including arbitration.”

Kaskell is best known later in his career for co-editing with Thomas J. Stipanowich, who headed the CPR Institute from 2000 to 2005, an often-cited best practices treatise, Commercial Arbitration at Its Best, a 2001 volume published with the American Bar Association.

But well before the treatise, Kaskell was an organizing force for the CPR Institute.  He set up what became a prototype for CPR Institute annual meetings, establishing cutting-edge agendas and recruiting and moderating numerous panels.

He led committee work that produced key CPR Institute Model ADR Practices and Procedures, for which Kaskell did the bulk of the writing and editing.

The first of his significant works was an analysis of the workings of the minitrial, which brought an informal way of assessing a case into a structured toolbox process for addressing and diffusing litigation.  A minitrial consists of an adversarial information exchange, followed by management negotiations directed to settling a dispute before a full-blown legal proceeding in a public court.

Kaskell wrote the minitrial rules, which were reviewed by an ad hoc committee assembled by the CPR Institute—then, the Center for Public Resources—before they were offered for adaptation to legal conflicts.

They were unprecedented–“the first model rules for minitrials and . . . designed to be flexible enough to be adopted by virtually any company contemplating submitting a dispute to minitrial for resolution.” Model Mini-Trial Agreement for Business Disputes, 3 (5) Alternatives 1 (May 1985) (available at http://bit.ly/2sDJo9k).

Kaskell returned to the subject of minitrials at CPR events and meetings.  The procedure, which was updated and supplemented twice over the years, is still used: You can read the full minitrial procedure and commentary at CPR Institute’s website at http://bit.ly/2sDJo9k.

Even more significantly, CPR’s arbitration rules began on Peter Kaskell’s desk.  When the CPR Institute first looked at arbitration in the 1980s, it saw the process as another independent means for lawyers to assist parties in resolving disputes without courts that could be used more effectively and frequently.  The CPR Institute conceived of arbitration as a nonadministered process run by the attorneys and tribunal as part of the practice of law.

Organization founder James H. Henry tasked Kaskell with heading what has become one of CPR’s longest-running committee projects.  Overseeing the Center for Public Resources’ Committee on Private Adjudication, Kaskell led a blue-ribbon commission in producing the organizations’ first set of arbitration rules in 1989.  The debut constituted a special supplement in the September 1989 issue of Alternatives, and can be found at http://bit.ly/2PD8crc.

Thirty years’ of subsequent history of the CPR Institute Arbitration Committee and rules, both nonadministered and, in this decade, administered rules, most of which included Kaskell’s input, can be surveyed at CPR’s website at www.cpradr.org/resource-center/rules/arbitration.

There were other areas that caught Kaskell’s attention and to which he contributed to making alternative dispute resolution standard practices. For example, in the environmental area, he was staff director in 1985 of a committee that produced the Superfund Multi-Party Site Cost Allocation Procedure. He led as staff director the CPR Institute’s first international committee efforts, as well as antitrust, insurance and technology committee initiatives.

Kaskell was both an expert in and fascinated by the workings of the corporate law department.  Before joining the CPR Institute as a vice president, he spent 27 years at Olin Corp., a Clayton, Mo., publicly traded chemical company.

In the 1990s, with CPR Institute Vice President Catherine Cronin-Harris, Kaskell conducted a study of in-house attorneys’ views of alternative dispute resolution.  The work charted the increasing awareness through the 1990s of the availability and efficacy of ADR.

The 1997 version of the study found, among other things, that nearly 17% of all cases in the in-house respondents’ portfolios used ADR process, more than double from just four years earlier.  See Catherine Cronin‐Harris and Peter H. Kaskell, “How ADR finds a home in corporate law departments,” 15 Alternatives 158 (December 1997) (available at http://bit.ly/2rZZ4Un).

Later, as a senior fellow at the CPR Institute, Kaskell focused on intellectual property issues.  See Peter H. Kaskell, “Is Your Infringement Dispute Suitable for Mediation?” 20 Alternatives 45 (March 2002) (available at http://bit.ly/2sL6QRV).

Kaskell was born in Berlin, Germany, in 1924, and came to the United States as a child.  He grew up in New York and completed his undergraduate work and his law degree at Columbia University.

He interrupted his Columbia education to enlist and serve in World War II, where he was a war hero.  For details on Kaskell’s wartime efforts, see Jeannette Ross, “Wilton loses war hero Peter Kaskell,” Ridgefield (Conn.) Bulletin (Dec. 17) (available at http://bit.ly/2S6SJRz).

Kaskell was a former trustee of the Aldrich Contemporary Art Museum in Ridgefield, Conn., and served as vice chairman of Connecticut Humanities.

On behalf of CPR, Waxman extends condolences to Kaskell’s wife, Joan Kaskell, who was a frequent presence at CPR Institute events over the years, and his four children and their families.