William Ury’s ‘The Art of Saying ‘No,’ and How it Applies in the Mediation Room

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By Mylene Chan

A Harvard Law School Program on Negotiation seminar taught late last year by William Ury picked up on his legendary negotiation practice and theory from his classic work.

The session, “The Art of Saying No: Save the Deal, Save the Relationship, and Still Say No,” elaborated on the concept of interest-based bargaining, which was developed by Roger Fisher and William Ury in the 1980s through the Harvard Negotiation Project, and first explored in 1981 in what became a perennial bestseller, “Getting to Yes: Negotiating Agreement Without Giving In,” by Roger Fisher, William Ury, and Bruce Patton (Penguin Books 2011).

This approach involves parties shifting their view of the opposition to collaborators, from adversaries, to liberate their minds in order to explore the deeper interests underlying the positions.  That allows the parties to create potential trade-offs and win-win opportunities. 

The core negotiation principles underpinning the interest-based bargaining model are universal despite variations in communication and presentation styles.  This can be observed in many mediations.  See, e.g., this author’s experiences as the 2022  Founder’s Fellow of Mediators Beyond Borders International, as recounted in David A. Hoffman, “In Praise of Mediation Observers,” 40 Alternatives 89 (June 2022) (available at https://bit.ly/3wSgRtU), and Robert Angelo Creo, “The Science of Hearing Effectively,” 40 Alternatives 91 (available at https://bit.ly/38iSyx7).

Ury began by reminding attendees that in negotiation, they need to stand up for their interests while saving the deal and the relationship. That often means saying “no” to unwanted desires or behavior.

Because there is tension between relationships and power, some focus primarily on the relationship or power dynamics. One approach is to go on the attack—“high power, low relationship.” 

Another is to be accommodating—”low power, high relationship.” The most common approach to avoid is the “low power, low relationship” category.

Ury advocates that the best approach is to employ a “positive no,” where one simultaneously pays a lot of attention to save the relationship and the deal while deploying one’s power to service one’s interests.

The key to the above approach is to prepare the “yes.” Ury recommends that negotiators should keep asking about their own positions–concrete demands such as price, specific terms and amounts–and interests, including underlying motivations such as wants, needs, and values.

Seminar attendees, he urged, should ask why they want to say “no.” The key is to keep drilling down to probe interests. What are the goals we seeking to create, protect, or change?  Negotiators should think of issues such as safety and survival, economic sustenance, belonging, love, and promoting the common good. The negotiation outcome should also uncover the negotiator’s values, such as integrity and excellence, and be in alignment in a holistic manner.

* * *

 A good mediator encourages people to explore their underlying interests. I observed that Boston-based mediator David Hoffman listened actively during the early parts of a mediation he conducted, and engaged in small talk with both parties extensively. 

Like many lawyers, I am goal-oriented and thrive on completion, and therefore, view small talk as inefficient and frivolous.  Hoffman explained later that it was important to build rapport with both parties so that both sides trust him and don’t see him as favoring one or the other. 

It was only through trust that people would open up, share their candid views, and allow Hoffman to probe deeper to understand their underlying interests. See Robert A. Creo, “The Large Power of Small Talk,” 39 Alternatives 139 (October  2021) (available at https://bit.ly/3PEjzvQ).

* * *

Ury explained in the seminar that an effective “no” isn’t shouted; it is respectful. “No” is a clear, clean line where we use the “no” to protect the “yes.”

It is better to say “no” through warning and educating about the logical consequences of the other party’s actions than to issue threats.

It is an interesting concept to see applied. In my practice as a transactional lawyer in emerging markets, I often see parties use power to escalate, not to educate. In contrast, I observed that mediator Robert Creo–see articles above–used preambles to gently educate parties about the legal consequences of their actions, even when one side clearly committed an offense.

Similarly, in observing Los Angeles mediator Jeff Kichaven, during caucus when a party asked him to relay an unpleasant “no” to the other side, Kichaven inquired how they thought their message would be received by the opposing side.

The party paused and rephrased their “no” in a respectful way.  This helped move things forward.

* * *

In his seminar, Ury also emphasized the importance of respecting the other side during negotiation. We show respect because it works, he said, not because someone deserves our respect. We also recognize the dignity of every human being. 

Basic respect does not mean liking the other people, approving of them, complying with their wishes, or even being nice to them. Respect means to look again, listen, and pay positive attention to the other person.

We have a valid point of view, but we also acknowledge the other side’s opinion. We validate so the other side does not just hear “no,” which they may perceive as threatening, causing a strong reaction to our “no.” In many conflicts, Ury advised, the cheapest concession we can make is respect, which, ironically, can mean everything to both sides.

During the mediation, Jeff Kichaven showed respect to parties by acknowledging the difference between a mediator and a lawyer. As a mediator, Kichaven would not present a contradictory view to the disputants in front of their lawyers even if he held superior knowledge from his litigation experience. 

Kichaven also respected parties’ will not to settle.  He kept the mediation process under his control and let the water flow without imposing his will. 

William Ury also taught the seminar participants that to stay true to their “yes,” the challenge is to manage the other’s reaction with appropriate responses. It is about understanding the stages to acceptance of bad news.

Often people go through emotions in a general sequence of avoidance, denial, and anxiety. At some point they get angry, and on the other side there is sadness, acceptance, and problem solving.

Robert Creo employed the same strategy in his mediation.  He let parties go through a few rounds of negotiation and venting before helping parties respect the mutual and divergent interests which enable a mutually acceptable resolution.

In today’s world, with toxic polarization in our societies, and with tensions in the world affecting all aspects of our lives, Ury’s exhortation of understanding, peace, and respect should be core interests for those who see their career as being a peacemaker.

William Ury, after reading a draft of this blog article, added this thought:

No. The most powerful and needed word in the language today is also potentially the most destructive and, for many people, is the hardest to say. Yet when we know how to use it correctly, this one word has the power to profoundly transform our lives for the better.

* * *

Ury’s class is available for a fee.  More information on it, along with a purchase link,  is available from the Harvard Program on Negotiation, at https://bit.ly/3lIVhmQ.

* * *

The author, as discussed above, is the 2022 Founder’s Fellow of Mediators Beyond Borders International. She was a CPR intern and contributed to Alternatives to the High Cost of Litigation and this CPR Speaks blog. Her work is profiled at Robert Angelo Creo, “Mentoring Then and Now,” 40 Alternatives 22 (February 2022) (available at https://bit.ly/3M7Br0m).

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2021-2022 SCOTUS Arbitration Wrap-Up

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June 16 Scotus Arbitration Cases Wrap-Up

The U.S. Supreme Court yesterday wrapped up its arbitration docket with a decision in Viking River Cruises v. Moriana, No. 20–1573.

That was the last of five arbitration matters scheduled, argued, and decided in the 2021-2022 Court term. It’s an unprecedented amount of cases in the area closely watched by the CPR and ADR communities, even in a term which, to be sure, has been characterized by controversial cases involving emergency orders on Covid-19 vaccinations, and forthcoming decisions on immigration, gun rights, and abortion.

We were joined today by members of our recurring, occasional YouTube panel to talk about Viking River Cruises and the other cases in an attempt to sum up the substantial and substantive arbitration instruction that has emerged from the nation’s top Court over the past several weeks in the five opinions.

University of North Texas Dallas College of Law Professor of Practice and Assistant Director of Experiential Education Angela Downes and veteran Texas attorney-arbitrator Richard Faulkner provide the insight.

With six SCOTUS cases as subjects, there’s a lot of quick references to the cases.  You can find the background case histories in previews, argument analysis, and dissections of the opinions on CPR Speaks here.

And here’s a quick guide to our CPR Speaks decision analysis for each case (containing links to our historical coverage), in the chronological order of Supreme Court decisions:

  • Badgerow v. Walters, No. 20-1143 (March 31), on the limits of federal court jurisdiction under the Federal Arbitration Act. (on CPR Speaks here).
  • Morgan v. Sundance Inc., No. 21-328 (May 23), holding that a party resisting arbitration seeking to show its adversary waived its arbitration right need not prove that the adversary prejudiced the party by its actions (here).
  • Southwest Airlines Co. v. Saxon, No. 21-309 (May 30), holding an airport ramp supervisor qualifies for the Federal Arbitration Act Section 1 exemption from arbitration (here).
  • ZF Automotive US Inc. v. Luxshare Ltd., No. 21-401 (June 13) consolidated with AlixPartners LLP v. Fund for Protection of Investor Rights in Foreign States, No. 21-518 (June 13), holding that 28 U.S.C. § 1728 cannot be used in aiding discovery efforts for overseas arbitration tribunals (here and here).
  • Viking River Cruises Inc. v. Moriana, No. 20–1573 (June 15), holding that the Federal Arbitration Act mostly preempts California’s Private Attorneys General Act of 2004 in that employees who have agreed to mandatory arbitration must arbitrate their individual PAGA claims (here).

The above video can be found directly on YouTube at https://youtu.be/KFV8xIvA_o8.

[END]

Supreme Court Limits California’s PAGA Law on Employment Claims, Preempting It in Part under the Federal Arbitration Act

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By Arjan Bir Singh Sodhi & Russ Bleemer

The U.S. Supreme Court ruled this morning that employers may require their workers to arbitrate employment disputes under California’s Private Attorneys General Act, a 2003 law that allows Californians to file suit on behalf of the state for employment-law violations.  

The Federal Arbitration Act, the Court found today in Viking River Cruises Inc. v. Moriana, No. 20–1573, preempts at least in part the California state PAGA law, which had been the source of tens of thousands of court claims in the face of arbitration requirements, according to an industry interest group formed to fight the PAGA arbitration ban.

This morning’s decision is available on the Supreme Court’s website here.

The dispute traces to the controversial California Supreme Court case of Iskanian v. CLS Transp. Los Angeles LLC, 327 P.3d 129 (Cal. 2014) (available at https://stanford.io/3ILcTY5), where the state’s top Court held “that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.”

Today’s majority opinion by Justice Samuel A. Alito Jr. does not fully invalidate PAGA, and takes issue with arguments on both sides. In fact, it leaves wiggle room for the California courts and legislature to tinker with PAGA to provide relief for what it terms “non-individual” claims that the original plaintiff no longer has standing to make under the decision.

But it strikes the Iskanian reasoning, and criticizes the PAGA statute’s orientation, noting that it isn’t clear on individual’s claims as opposed to representative actions.  Alito explains that representative actions under the law are not only those of the “individual claims” of employees who seeks to file suit for workplace claims under the state’s Labor Code, but also representative PAGA claims predicated on code violations “sustained by other employees.” The latter, under Iskanian, may not be subject to mandatory arbitration.

That didn’t sit well with the majority opinion, which contrasts PAGA’s single suit involving many claims but solely by an individual on behalf of the California Labor & Workforce Development Agency, as opposed to class-action cases which may involve many claims but also on behalf of many absent plaintiffs who are certified as a class. 

The bottom line is that the representative aspect of PAGA as it applies to arbitration was stricken in today’s Court decision, an 8-1 decision with two concurring opinions. There was a dissent by Justice Clarence Thomas, who maintained his longstanding view–a short dissenting opinion that he has issued on at least seven other occasions–that the Federal Arbitration Act doesn’t apply in state courts.

The results already are seen as a relief by California business interests, with the Iskanian arbitration bar eliminated.  Los Angeles-based Anthony J. Oncidi, a partner and co-chair, of Proskauer Rose’s Labor and Employment Department, writes in an email,

Employers all over California are rejoicing today with the news that this peculiar PAGA exemption from arbitration is finally gone. Employers should run, not walk, to take advantage of this significant new development by immediately reviewing and, if necessary, amending their arbitration agreements to encompass PAGA claims. And as for those employers who, for whatever reason, have not yet availed themselves of an updated arbitration program, this is just the most recent reason to consider doing so.

Another management-side attorney, Christopher C. Murray, an Indianapolis shareholder in Ogletree, Deakins, Nash, Smoak & Stewart, P.C., writes,

Today’s decision is, for now, a victory for employers with well-crafted arbitration agreements containing class action and representative action waivers and severability clauses. However, it’s a nuanced decision that leaves open a number of issues.  One is whether the California legislature can amend PAGA to give a plaintiff standing to bring a representative PAGA action even if the plaintiff cannot pursue an individual claim in the same action. In short, it’s unlikely that today’s opinion will be the final word on representative PAGA actions and arbitration.

[Murray co-chairs the Employment Disputes Committee at the International Institute for Conflict Prevention and Resolution-CPR, which provides this blog.]

“While today’s decision is disappointing and adds new limits, key aspects of PAGA remain in effect and the law of our state,” noted California State Attorney General Rob Bonta in a statement this afternoon. He added: “Workers can continue to bring claims on behalf of the State of California to protect themselves and, in many instances, their colleagues all across California. At the California Department of Justice, we will continue to stand with workers to fight for their rights everywhere.” (The full press release is available here.)

Today’s decision may serve to derail efforts to enact PAGA-like statutes in other states. Had the law stood in its entirety and its arbitration end-run survived, labor likely would have reinvigorated pushes in blue states to add similar laws. See, e.g., Dan Walters, “The Fight Over the Private Attorneys General Act,” Orange County [Calif.] Register (April 5) (available at https://bit.ly/3MOO7s5).

The PAGA law, according to employers, negated the effects of the U.S. Supreme Court cases of Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018) (available at http://bit.ly/2Y66dwK), which authorized mandatory predispute arbitration, and AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (available at http://bit.ly/2VcI4mi), which permits mandatory arbitration backed with class waivers in consumer contracts.

The Court heard the oral arguments on March 30, the last of four arbitration cases argued in nine days at the nation’s top court. See Russ Bleemer, “Adding a Claim, and Avoiding Arbitration: The Supreme Court Reviews California’s Private Attorneys General Act,” CPR Speaks blog (March 30) (available at https://bit.ly/3NWMFoQ).

It’s also the last of the five arbitration cases the nation’s top Court has accepted and decided in its 2021-2022 term, following closely on Monday’s decision in consolidated international arbitration cases focused on cross-border discovery issues.  Links to reports on all of the U.S. Supreme Court decisions, as well as case previews and in-depth reviews of the arguments, can be found on the CPR Speaks blog here.

* * *

Under the PAGA law, employees may bring forth disputes on behalf of similarly situated workers who also allege employment violations. Angie Moriana, who worked as a sales representative for Viking River Cruises in 2016 and 2017, filed suit against the company in a representative action for alleged violations of California labor laws. Moriana alleged that Viking River Cruises violated California wage and hour laws. She had signed a pre-dispute agreement agreeing to file her claims in arbitration individually, and waiving her ability to bring a class action. As a result, Viking River Cruises sought arbitration.

In Iskanian in 2014, the California Supreme Court ruled that though PAGA suits are filed on behalf of the state, employees cannot forgo their ability to file these claims individually. The California Supreme Court decided Iskanian before the U.S. Supreme Court–showing its broad deference to the Federal Arbitration Act’s recognition of the enforcement of arbitration agreements–decided the Epic Systems mandatory employment arbitration case.

This Iskanian mandatory arbitration bar reasoned that PAGA plaintiffs represent the state as private attorneys general even though the state was not a party to the arbitration agreement. In Epic Systems v. Lewis, the U.S. Supreme Court held that mandatory arbitration agreements do not violate employees’ rights under Section 7 of the National Labor Relations Act. 

PAGA supporters argued that the law supplements the California Labor and Workforce Development Agency’s limited enforcement capability by allowing employees to enforce the state labor laws.  Employers contended that the inability to arbitrate workplace disputes cost money and jobs.

During the March 30 Supreme Court oral arguments (full CPR Speaks coverage at the link above), the court’s liberal justices were more animated, and appeared to back the California Supreme Court prohibiting mandatory arbitration of PAGA claims. Justices Sonia Sotomayor and Elena Kagan questioned why the state’s choice to enforce its workplace regulations should be overridden by the FAA, a statute now nearly a century old.

The Court conservatives did not share the same doubts. Contrary to Moriana’s assertion that requiring arbitration essentially waives a PAGA claim, Chief Justice John G. Roberts Jr. stated that a PAGA plaintiff does have a right to pursue the substantive claim, although through a different means. Today’s opinion author, Justice Alito, appeared to imply that the court’s Epic Systems decision supported finding arbitration agreements enforceable in the face of PAGA allegations.

* * *

Alito continued that line of reasoning in this morning’s decision, invoking the Court’s arbitration precedents, and discussing the expected characteristics of arbitration as a bilateral process, not a representative or class proceeding.

Alito criticized the California statute’s structure—”a PAGA action asserting multiple code violations affecting a range of different employees does not constitute ‘a single claim’ in even the broadest possible sense”—and noted that the law prohibited dividing the matter into the constituent individual and representative claims.

The opinion focused on the definitions of representative claims in bilateral arbitration.  It states that while precedents don’t hold “that the FAA allows parties to contract out of anything that might amplify defense risks,”  the practice makes “it . . . impossible to decide representative claims in an arbitration that is ‘bilateral’ in every dimension.” Alito wrote, “[O]ur cases hold that States cannot coerce individuals into forgoing arbitration by taking the individualized and informal procedures characteristic of traditional arbitration off the table.”

The federal-state law conflict, however, was elsewhere.  The majority opinion–in a section where Chief Justice Roberts, and Justices Brett Kavanaugh and Amy Coney Barrett, did not join with the majority—finds a conflict between PAGA and the FAA in PAGA’s “built-in mechanism of claim joinder.”  The Court says that Iskanian’s mandate of joinder of “aggrieved” employees’ “personally suffered” Labor Code violations “as a basis to join to the action any claims that could have been raised by the State in an enforcement proceeding” coerced parties’ PAGA claims out of arbitration.

The majority invoked its historic view of arbitration, holding that “state law cannot condition the enforceability of an arbitration agreement on the availability of a procedural mechanism that would permit a party to expand the scope of the arbitration by introducing claims that the parties did not jointly agree to arbitrate.”

Alito adds that PAGA allowed parties to avoid their agreement to arbitrate their individual claims after the fact and demand court or arbitration that exceeds the scope of the original agreement: “The only way for parties to agree to arbitrate one of an employee’s PAGA claims is to also ‘agree’ to arbitrate all other PAGA claims in the same arbitral proceeding.” [Emphasis is in the opinion.]

That aspect of the California law did not survive. “We hold that the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate,” Alito wrote. The agreement’s severability clause, the opinion concludes, allows Viking River Cruises to compel individual arbitration of respondent Moriana’s claims.

The opinion also dismisses Moriana’s non-individual claims, holding that, with the dismissal, Moriana no longer had standing, leaving those claims–still valid in the majority’s view–in limbo. Instead of court or arbitration, however, the opinion targets the law. Alito concludes, “PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding.”

* * *

In her concurrence, Justice Sotomayor picks up on the majority’s closing point as well as followed from her oral argument concerns about whether the FAA could eliminate claims chosen by the California Legislature for its constituents via PAGA.

First, she asserts that the majority “makes clear that California is not powerless to address its sovereign concern that it cannot adequately enforce its Labor Code without assistance from private attorneys general.”

But then, returning to Alito’s closing point that the nonindividual claims have no outlet due to Moriana’s apparent lack of standing under California law, Sotomayor agrees, noting that there are options:

Of course, if this Court’s understanding of state law is wrong, California courts, in an appropriate case, will have the last word. Alternatively, if this Court’s understanding is right, the California Legislature is free to modify the scope of stat­utory standing under PAGA within state and federal con­stitutional limits.

Viking River Cruises, says Washington, D.C., arbitrator Mark Kantor, who closely follows the Court’s arbitration jurisprudence and previewed the case for CPR Speaks here, “leaves considerable scope for the California legislature to rework PAGA to reestablish a representative action that could survive FAA preemption and make a waiver of PAGA unenforceable, although possibly enforceable in an arbitral forum if the relevant employment agreements calls for arbitration.”

* * *

Justice Amy Coney Barrett’s additional opinion is brief but goes further–concurring in the judgment, at the same time stepping away from much of the majority’s discussion of representative and individual actions.

She concurs with Section III of the opinion, the FAA-PAGA conflict because of the California law’s mandatory joinder provisions that would bring representative claims to arbitration. Joined by Chief Justice Roberts and Justice Kavanaugh, Barrett writes that she agrees “that reversal is required under our precedent because PAGA’s procedure is akin to other aggregation devices that cannot be imposed on a party to an arbitration agreement,” citing four seminal Supreme Court cases including Epic Systems and AT&T Mobility (see above).

But her one-paragraph concurrence concludes, and could add fuel to moves by the California Legislature to reform PAGA in light of today’s decision:

I would say nothing more than that. The discussion in Parts II and IV of the Court’s opinion is unnecessary to the result, and much of it addresses disputed state-law questions as well as arguments not pressed or passed upon in this case.*

That asterisk is to a footnote, in which Justice Barrett adds, “The same is true of Part I,” which described the PAGA, Iskanian, and case histories.

Chief Justice Roberts dissented from the footnote, and joined in the Alito majority opinion for Parts 1 and III.

* * *

Sodhi, a former CPR intern, last month received his LLM at the Straus Institute for Dispute Resolution, at Malibu, Calif.’s Pepperdine University Caruso School of Law.  Bleemer edits Alternatives to the High Cost of Litigation for CPR.

[END]

Will the 11th Circuit Maintain N.Y. Convention Deference for Arbitration Award Enforcement?

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By Xin Judy Wang

A three-judge Eleventh U.S. Circuit Court of Appeals panel has made the unusual move of urging the full circuit to convene en banc to overturn its precedents addressing vacatur of arbitral awards.

Part of a minority among circuits, an Eleventh Circuit panel on May 27 limited the basis for vacating an international arbitral award only to the seven grounds enumerated in Art. V of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, best known as the New York Convention. Deference to the New York Convention makes Alabama, Florida, and Georgia—the states covered by the Eleventh Circuit–attractive forums for international arbitration.

But this deferential position may soon change.

In Corporacion AIC, S.A. v. Hidroelectrica Santa Rita S.A., the Eleventh Circuit panel reluctantly affirmed the district court’s determination that it cannot vacate an international arbitral award on the “exceeding powers” ground. No. 20-13039 (11th Cir. May. 27, 2022) (available at https://bit.ly/3zuLRDi).

Stating it was “powerless to change the course as a three-judge panel,” the opinion, by Senior Circuit Judge Gerald Bard Tjoflat, encouraged the appeals court to convene en banc to overturn its precedents, “and hold that under a correct understanding of Supreme Court precedent the exceeding powers ground is a valid basis for vacatur under both the New York Convention and the [Federal Arbitration Act].”

* * *

The parties to the dispute are two Guatemalan companies, Corporacion AIC, or AICSA, and Hidrolectrica Santa Rita, referred to as HSR below. The parties signed a March 2012 contract to construct a hydroelectric power plant in Guatemala, but had to discontinue the project when HSR issued a force majeure notice in response to fierce opposition by the local community—excusing performance and canceling the contract.

HSR then sought reimbursement for advance payments and commenced arbitration proceedings in the International Court of Arbitration. The arbitration, held in Miami, resulted in an order that AICSA return about $7 million and about €435,000 to HSR. AICSA was allowed to keep its earnings pursuant to the contract, about $2.5 million and about €700,000.

Dissatisfied with the decision, AICSA filed suit in Florida’s Southern U.S. District Court, petitioning to vacate the award because “the arbitration panel had exceeded its powers.”

The “exceeding powers” ground is not enumerated in the New York Convention. Instead, it comes from 9 U.S.C. § 10(a)(4)–the Chapter 1 Federal Arbitration Act provision on overturning awards. The district court denied the petition, citing Eleventh Circuit precedents that the New York Convention–codified by FAA Chapter 2–exclusively governs vacatur of an international arbitral award. 

* * *

The Eleventh Circuit first adopted its deferential position in the 1998 case Industrial Risk Insurers v. M.A.N. Gutehoffnungshutte GmbH, 141 F.3d 1434 (11th Cir. 1998) (available at https://bit.ly/3O8XAf6). In Industrial Risk, the appellate court explained that the New York Convention’s defenses against enforcing an international arbitral award are “exclusive.” On similar facts of foreign parties arbitrating in Florida, the circuit declined to consider a ground of vacatur not explicitly mentioned in the New York Convention.

The circuit last confirmed this deference in  Inversiones y Procesadora Tropical INPROTSA, S.A. v. Del Monte Int’l GmbH., 921 F.3d 1291 (11th Cir. 2019) (available at https://bit.ly/3HfcoWY). Also addressing an arbitration between two foreign corporations in Florida, the panel confirmed the binding force of Industrial Risk in the circuit.

In the opinion, Senior Circuit Judge Tjoflat critiqued Industrial Risk, noting that the decision did not consider whether a non-enumerated vacatur ground from domestic law may be used under New York Convention Art. V(1)(e), which states,

(1) Recognition and enforcement of the award may be refused, at the request of the party against whom it is invoked, only if that party furnishes to the competent authority where the recognition and enforcement is sought, proof that:

. . . .

(e) The award has not yet become binding on the parties, or has been set aside or suspended by a competent authority of the country in which, or under the law of which, that award was made. [Emphasis added in this post.]

The panel reads V(1)(e) as allowing national courts to vacate an award based on domestic grounds when the forum is either the seat of arbitration or when its law is applied.

* * *

According to the Corporacion AIC panel, this reading of V(1)(e) depends on recognizing the distinction between primary and secondary jurisdiction. A forum has primary jurisdiction when it is the location of the arbitral award or when its law is used to decide the arbitration dispute.

A forum has secondary jurisdiction when the forum’s court is not the seat of arbitration and thus may only refuse to enforce, rather than annul an award. Therefore, when, as here, the United States is the arbitration seat, a U.S. forum has primary jurisdiction to vacate the award on domestic grounds.

The panel opinion draws support from the Supreme Court case BG Group PLC v. Republic of Argentina, 572 U.S. 25 (2014) (available at https://bit.ly/3OwTopJ)  (Argentina sought to vacate an award on the basis that the arbitrators lacked jurisdiction and thus “exceed their powers” under FAA 10(a)(4)). In BG Group, the Court noted that for a motion to vacate a U.S. award, federal courts should normally interpret a treaty’s intent by applying presumptions supplied by U.S. law. The Corporacion AIC panel reads this comment as a “[nod] to the idea of primary jurisdiction” by conferring a special reviewing power to the arbitration forum.

The panel boosts this distinction by pointing to a country’s heightened interest in the outcome of an award when that country’s laws are being used or when it is the location of arbitration. It goes on to suggest that a state should have a mechanism to ensure an award’s validity when the award is issued in its jurisdiction. Limiting grounds of vacatur strictly to those enumerated in the Convention would constitute “meddling with national procedure for handling domestic awards,” citing a Second Circuit case, Yusuf Ahmed Alghanim & Sons v. Toys “R” Us Inc., 126 F.3d 15, 22 (2d Cir. 1997) (available here).

More specifically, the Corporacion AIC panel reads BG Group to have applied the “exceeding power” ground in its vacatur analysis (the Supreme Court opinion stated that it could not “agree with Argentina that the arbitrators exceeded their powers in concluding they had jurisdiction.”) Though not the key BG Group opinion focus, the Eleventh Circuit panel reads this comment as the Supreme Court’s implicit endorsement of applying vacatur grounds not expressly mentioned in the New York Convention.

This is not the first time the Eleventh Circuit has adopted such a reading of BG Group. In the 2017 case Bamberger Rosenheim Ltd., (Israel) v. OA Dev. Inc., (United States), the circuit cited BG Group and “assumed without deciding” that FAA Chapter 1 applied to international arbitral awards. 862 F.3d 1284, 1287 n.2 (11th Cir. 2017) (available at https://bit.ly/3O950yG).

* * *

Circuit Judge Adalberto Jordan wrote a Corporacion AIC concurrence taking a different path that reached back to the Convention’s 1958 adoption. He agreed with the majority opinion that Industrial Risk and Inversiones were wrongly decided, and the appeals court should apply FAA § 10 grounds to vacate a New York Convention award.

The disagreement lies in his rationale. He applied FAA § 10 not because the vacatur standards are incorporated into the New York Convention through Art. V(1)(e), but rather that § 10 should apply, as domestic law, directly to the vacatur of an international award made in the United States.

The New York Convention draws from two earlier treaties, the 1923 Geneva Protocol on Arbitration Clauses and the 1927 Geneva Convention on the Execution of Foreign Arbitral Awards. The former mandated award enforcement only in the seat of arbitration, and the latter broadened its scope by providing for award recognition and enforcement in countries other than the seat.

The problem with the two Geneva Treaties was “double exequatur,” referring to the Geneva Convention’s requirement that an award can only be recognized and enforced (in countries other than the seat) if it was already “final in the country in which it ha[d] been made.” This created an extra hurdle for international enforcement of arbitral awards. The New York Convention eliminated the double exequatur by no longer requiring the seat’s recognition for enforcement elsewhere.

Circuit Judge Jordan recognized this significant modification but maintained that the New York Convention left intact the binary framework of the Geneva Treaties. There remain different responsibilities and authorities between the arbitral seat and other states. The arbitral seat can vacate an award, but other States may only recognize and enforce an award (which parallels the majority opinion’s definition of primary and secondary jurisdiction). Jordan drew attention to the Convention’s text–Art. V(1) starts with “Recognition and enforcement of the award may be refused.  …” Therefore, Art. V(1)(e) only addresses recognition and enforcement in other states. Jordan’s opinion states that the New York Convention (and its counterpart,  FAA Chapter 2) do not enumerate the grounds on which a court can vacate an international arbitral award.

Accordingly, to “fill the gap” of the New York Convention, vacatur should be governed by domestic law. Jordan cited the 2020 U.S. Supreme Court international arbitration case of GE Energy Power Conversion Fr. SAS Corp. v. Outokumpu Stainless USA, 140 S. Ct. 1637 (available at https://bit.ly/3xKmpHJ) (“the New York Convention was drafted against the backdrop of domestic law” and “the Convention requires courts to rely on domestic law to fill [its gaps]”).

Circuit Judge Jordan also looked to the United Kingdom and Switzerland’s permission to challenge international arbitral awards on native grounds.  He suggested that the FAA’s 9 U.S.C § 208, on the FAA’s application, was drafted to reflect this binary framework. Courts, the concurrence suggests, should apply domestic law for award vacatur for arbitrations held in the United States (§ 208 – “Chapter 1 applies to actions and proceedings … to the extent that chapter is not in conflict with this chapter or the [New York Convention]. . . .”).

* * *

As recognized by Circuit Judge Jordan’s concurrence, the number of international arbitrations has been rising in the Eleventh Circuit. The circuit’s deference to the New York Convention for award enforcement likely plays an important role in its popularity.

It is unusual for a panel to urge a rehearing en banc to overturn circuit precedents, especially when the majority and concurrence provide two different routes for the basis of overturning the precedents. How Corporacion AIC will continue to develop in the circuit or at the U.S. Supreme Court will significantly affect international arbitration in the circuit and beyond.

Attorneys for the parties did not immediately reply to email requests for comment.

* * *

The author, who will be a second-year student at Columbia University Law School in New York this fall, is a 2022 CPR summer intern.

[END]

More on Section 1782: Why the U.S. Supreme Court Says the Law Doesn’t Permit Discovery Requests from International Arbitrations

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By Tamia Sutherland & Russ Bleemer

Here is a deeper dive into today’s U.S. Supreme Court consolidated decision in ZF Automotive US Inc. v. Luxshare Ltd., No. 21-401, which was consolidated with and covers AlixPartners LLP v. Fund for Protection of Investor Rights in Foreign States, No. 21-518. Does the new decision, which restricts discovery under a law aiding foreign governmental entities in U.S. courts, also limit discovery under the Federal Arbitration Act?

Our post covering the opinion from this morning can be found on CPR Speaks here.

In today’s unanimous 9-0 opinion, available here, the Court held that the use of 28 U.S.C. § 1782 for discovery in international proceedings was limited. “Only a governmental or intergovernmental adjudicative body constitutes a ‘foreign or international tribunal’ under 28 U. S. C. §1782,” wrote Justice Amy Coney Barrett in her first arbitration decision since ascending to the bench in 2020, “and the bodies at issue in these cases do not qualify.”

The statute, as the opinion notes, “permits district courts to order testimony or the production of evidence ‘for use in a proceeding in a foreign or international tribunal.’”

Specifically, Section 1782 states:

The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation.

Justice Barrett focused in the opinion on the phrase “foreign or international tribunal,” citing Black’s Law Dictionary and the Court’s only previous Sec. 1782 holding, Intel Corp. v. Advanced Micro Devices Inc., 542 U. S. 241  (2004) (available at https://bit.ly/3xKIMO5), which permitted discovery to a foreign tribunal but didn’t decide the arbitration-application issue. She parses the definitions individually of “foreign,” “international,” and “tribunal.”

Citing the U.S. government’s brief, which sought a limited use of the statute that didn’t include arbitration, Barrett writes,

“Tribunal” is a word with potential governmental or sovereign connotations, so “foreign tribunal” more naturally refers to a tribunal belonging to a foreign nation than to a tribunal that is simply located in a foreign nation. And for a tribunal to belong to a foreign nation, the tribunal must possess sovereign authority conferred by that nation.”

John B. Pinney, counsel to Cincinnati’s Graydon Head & Ritchey–who is counsel of record on an AlixPartners amicus brief urging the Court to accept the case on behalf of CPR, publisher of this blog (details here)–says that the government’s intervention in the case was pivotal. He cites the government brief and, in particular, Assistant Solicitor General Edwin Kneedler’s participation in the March 23 Supreme Court hearing.

“Between the lines,” notes Pinney in an email, “Kneedler’s argument on behalf of the United States did change the momentum of the proponents’ arguments as well as bolstering the opponents’ arguments.  . . . Justice [Stephen G.] Breyer, whose early questions seemed to put him in the proponent’s camp, appeared to move toward the opponents’ position during Kneedler’s argument when he made a comment that the well-heeled users of international arbitration could petition Congress if they wanted authorization for federal court judicial assistance.  In other words: the view that the operative phrase, ‘foreign or international tribunal,’ in Sec. 1782 ought not be expansively interpreted and that, as a result, it should be up to Congress to be clear if it truly wanted federal courts to have jurisdiction to provide discovery assistance for international arbitral tribunals.”

The Supreme Court opinion’s section on the meaning of the statutory wording concludes by excluding private matters, stating,

“[F]oreign tribunal” and “international tribunal” complement one another; the former is a tribunal imbued with governmental authority by one nation, and the latter is a tribunal imbued with governmental authority by multiple nations.

* * *

The opinion then compares 28 U.S.C. 1782 discovery to the Federal Arbitration Act. It notes that limiting the law’s use to “only bodies exercising governmental authority is consistent with Congress’ charge to the Commission,” referring to the Commission on International Rules of Judicial Procedure, which studied U.S. judicial assistance to foreign countries, and recommended improvements, including the law.

Barrett discusses the effects of adopting a broader reading, and, rejecting the plea, notes:

[T]he animating purpose of §1782 is comity: Permitting federal courts to assist foreign and international governmental bodies promotes respect for foreign governments and encourages reciprocal assistance. It is difficult to see how enlisting district courts to help private bodies would serve that end. Such a broad reading of §1782 would open district court doors to any interested person seeking assistance for proceedings before any private adjudicative body—a category broad enough to include everything from a commercial arbitration panel to a university’s student disciplinary tribunal. [The opinion cites petitioner ZF Automotive’s brief.]

An extension to private bodies of Section 1782 would create “significant tension with the FAA” because the discovery allowed under Section 1782 is broader, Barrett explains.

But in discussing the contrast, the passage that followed also appears to refine the FAA’s use, and is sure to raise questions about the limits among veteran practitioners:

Among other differences, the FAA permits only the arbitration panel to request discovery, see 9 U. S. C. §7, while district courts can entertain §1782 requests from foreign or international tribunals or any “interested person,” 28 U. S. C. §1782(a). In addition, prearbitration discovery is off the table under the FAA but broadly available under §1782. See Intel, 542 U. S., at 259 (holding that discovery is available for use in proceedings “within reasonable contemplation”).

“This wouldn’t be the first time the Court made arbitration law via dicta,” notes Fordham University School of Law adjunct George H. Friedman, a former longtime senior vice president of dispute resolution at FINRA in an email, adding, “Manifest disregard” [which had been used in addition to FAA Sec. 10 to overturn awards] was announced via dicta in Wilko v. Swan back in 1953.” For more on the Court’s FAA gloss, see George H. Friedman, “SCOTUS Decides ZF Automotive: Yet Another Unanimous Decision, This One Holding that Section 1782 Discovery in Foreign Arbitrations Applies Only to Governmental Tribunals,” Securities Arbitration Alert (June 13) (available here).

Barrett concludes the Court’s Section 1782 definition by noting,

§1782 requires a “foreign or international tribunal” to be governmental or intergovernmental. Thus, a “foreign tribunal” is one that exercises governmental authority conferred by a single nation, and an “international tribunal” is one that exercises governmental authority conferred by two or more nations. Private adjudicatory bodies do not fall within §1782.

* * *

In looking at the facts in the two arbitration cases on appeal to the Supreme Court, the opinion analyzed whether the “adjudicative bodies” were “governmental or intergovernmental,” concluding that the matters were private arbitration, and not subject to Section 1782 discovery.

It was an easy call on the ZF Automotive case:

[P]rivate entities do not become governmental because laws govern them and courts enforce their contracts—that would erase any distinction between private and governmental adjudicative bodies. [Respondent] Luxshare’s implausibly broad definition of a governmental adjudicative body is nothing but an attempted end run around §1782’s limit.  

The opinion quickly notes, however, that the AlixPartners case involving the Lithuanian government is harder. It features a government on one side of a case where the arbitration option is contained in an international treaty rather than a private contract, making the case appear to be an intergovernmental dispute under Section 1782.

“Yet neither Lithuania’s presence nor the treaty’s existence is dispositive, because Russia and Lithuania are free to structure investor-state dispute resolution as they see fit,” the opinion states.

Instead, wrote Barrett, “What matters is the substance of their agreement: Did these two nations intend to confer governmental authority on an ad hoc panel formed pursuant to the treaty?”

The Supreme Court analyzed the parties’ contractual arbitration options, which included using court-related processes, as well as Arbitration Institute of the Stockholm Chamber of Commerce and the  International Chamber of Commerce’s Court of Arbitration.

But the parties chose “an ad hoc arbitration in accordance with Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).”

That, wrote Justice Barrett, “by contrast, is not a pre-existing body, but one formed for the purpose of adjudicating investor-state disputes. And nothing in the treaty reflects Russia and Lithuania’s intent that an ad hoc panel exercise governmental authority. For instance, the treaty does not itself create the panel; instead, it simply references the set of rules that govern the panel’s formation and procedure if an investor chooses that forum. In addition, the ad hoc panel “functions independently” of and is not affiliated with either Lithuania or Russia.”

The opinion adds, “So inclusion in the treaty does not, as the [respondent] Fund suggests, automatically render ad hoc arbitration governmental.” Still, after its focus on the ad hoc nature of the investor-state bilateral investment treaty dispute resolution process, the opinion notes that in the future, sovereign parties may be able to “imbue an ad hoc arbitration with official authority.”

In reversing the lower court decisions in both consolidated cases, Justice Barrett lays out the new rule of law on overseas discovery under 28 U.S. 1782 succinctly in her conclusion:

In sum, only a governmental or intergovernmental adjudicative body constitutes a “foreign or international tribunal” under §1782. Such bodies are those that exercise governmental authority conferred by one nation or multiple nations. Neither the private commercial arbitral panel in the first case nor the ad hoc arbitration panel in the second case qualifies.

* * *

Sutherland, a former year-long 2021-2022 CPR intern, will be a third-year law student at the Howard University School of Law, in Washington, D.C. this fall. Bleemer edits Alternatives to the High Cost of Litigation for CPR and John Wiley & Sons.

[END]

,                                                                              

Supreme Court Bars Discovery Assistance for Private Overseas Arbitration Panels Under U.S. Law

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By Tamia Sutherland & Russ Bleemer

The U.S. Supreme Court this morning restricted the use of 28 U.S.C. § 1782 for discovery in international proceedings to “[o]nly a governmental or intergovernmental adjudicative” body, but not cross-border arbitration matters.

The unanimous 9-0 decision in consolidated cases by Justice Amy Coney Barrett—her first arbitration opinion as a member of the nation’s high Court—clarifies the use of the 1964 law, which recently split the federal circuit courts over its reach for arbitration parties.

“Interpreting §1782 to reach only bodies exercising governmental authority is consistent with Congress’ charge to the Commission,” wrote Barrett–referring to the 1960’s Commission on International Rules of Judicial Procedure, to improve U.S. laws reaching overseas–in today’s decision in ZF Automotive US Inc. v. Luxshare Ltd., No. 21-401, which was consolidated with and covers AlixPartners LLP v. The Fund for Protection of Investor Rights in Foreign States, No. 21-518.

The opinion can be found here.

The issue was whether 28 U.S.C. § 1782 can be invoked in international arbitrations to obtain U.S.-style discovery for evidence. This inquiry looked at whether the statutory language—“foreign or international tribunal”—extends to arbitration panels.

The opinion had little problem removing arbitration discovery requests from a private arbitration tribunal in ZF Automotive, where a federal district court permitted discovery under the statute in the U.S. for parties in the court’s jurisdiction. The Sixth U.S. Circuit Court of Appeals denied a ZF Automotive request to stay the order.

Today’s opinion, however, states that the legislative history behind the statute, as well as a comparison to the domestic-focused Federal Arbitration Act, which allows far narrower discovery than Section 1782, puts the law’s focus on discovery for governmental bodies, not private arbitration tribunals.

The Court had more difficulty with the AlixPartners case, which involved the government of Lithuania. But the Barrett opinion says that the parties’ actions under a bilateral investment treaty are the key here–the parties were acting more like private parties than governmental entities in setting up an ad hoc ADR process. 

“An ad hoc arbitration panel, by contrast, is not a pre-existing body, but one formed for the purpose of adjudicating investor-state disputes,” wrote Barrett, “And nothing in the treaty reflects Russia and Lithuania’s intent that an ad hoc panel exercise governmental authority.”

AlixPartners focused on investor-state arbitration, in which one of the parties is the Lithuanian government. In AlixPartners, the respondent is a Russian entity representing investors pursuing claims before an ad hoc UNCITRAL-rules arbitral tribunal against Lithuania for the investors’ financial losses resulting from the insolvency of a Lithuanian bank. The Second U.S. Circuit Court of Appeals permitted discovery, finding that the ad hoc panel qualified under Section 1782 as a “foreign or international” tribunal rather than a private arbitration matter.

The Barrett opinion notes that the inclusion of arbitration in the BIT did not automatically make the process a governmental proceeding meriting the use of Section 1782. “Instead,” wrote Barrett, “it reflects the countries’ choice to offer investors the potentially appealing option of bringing their disputes to a private arbitration panel that operates like commercial arbitration panels do.”

[The publisher of this blog, CPR, urged the Court in an amicus brief to hear the AlixPartners case last year, without taking a merits position on the case. Details are available here.]

In ZF Automotive, a private commercial contract with ZF Automotive’s German parent required that disputes be arbitrated before the German Arbitration Institute, an arbitration provider. The ZF Automotive case, however, was brought in Detroit before the commencement of the Germany private international arbitration. 

The U.S. District Court allowed the requested discovery.  On appeal to the Sixth Circuit, ZF Automotive, in an unusual move, petitioned for certiorari before judgment to bypass waiting for the Sixth Circuit to decide its appeal. The Sixth Circuit, as noted, declined to stay the lower court’s order. Respondent Luxshare had requested and was granted discovery for the arbitration, in which it alleged fraud against ZF Automotive, under Section 1782. The Supreme Court granted certiorari on Dec. 10, and reversed the lower court decision today.

During a two-week, four-argument deep dive into arbitration law and practice in March (see this CPR Speaks link for previews, argument summaries, and reports on the decisions issued so far here), the Supreme Court heard these Sec. 1782 consolidated arguments as well as an oral argument from the U.S. Solicitor General’s office.

Veteran Assistant Solicitor General Edwin Kneedler’s contention that the Court should be cautious in accepting respondents’ arguments because any expansion of the scope of Section 1782’s reach should be addressed by Congress is reflected in the decision-making process, and the U.S. government’s brief is cited by Justice Barrett. Full details on the March 23 ZF Automotive oral arguments are available on this CPR Speaks blog here.

* * *

Sutherland, a former year-long 2021-2022 CPR intern, will be a third-year law student at the Howard University School of Law, in Washington, D.C. this fall. Bleemer edits Alternatives to the High Cost of Litigation for CPR and John Wiley & Sons.

[END]

Supreme Court Backs Airport Worker, Applies Federal Arbitration Act Sec. 1 Exemption, and Sends Employment Dispute to Court

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By Russ Bleemer and R. Daniel Knaap

The U.S. Supreme Court affirmed unanimously a Seventh U.S. Circuit Court of Appeals decision that a worker who loads or unloads goods from vehicles that engage in interstate commerce, but does not physically transport goods, is exempt from the Federal Arbitration Act as a “worker engaged in foreign or interstate commerce” under FAA Sec. 1, resolving a circuit split.

Southwest Airlines Co. v. Saxon, No. 21-309 (today’s decision is available here), involves a Fair Labor Standards Act suit brought by Illinois respondent Latrice Saxon against petitioner Southwest Airlines Co., her employer. Southwest was initially successful, moving to dismiss under the FAA despite Saxon’s argument that she, as a ramp supervisor, is exempt from the FAA under FAA Sec. 1. Case No, 19-cv-0403 (N.D. Ill. Oct. 8, 2019) (available here). The District Court had followed the Fifth U.S. Circuit Court of Appeals.

But the Seventh Circuit reversed, agreeing with Saxon that airplane cargo loaders are engaged in interstate commerce, even though she was located solely at Chicago Midway International Airport. Saxon, in the Seventh Circuit’s view, consequently is a transportation worker whose employment contract is exempt from the FAA. 993 F.3d 492 (7th Cir. 2021) (available here).

That view was affirmed today in the 8-0 opinion by Justice Clarence Thomas, erasing the circuit split with the Fifth Circuit. Justice Amy Coney Barrett didn’t participate.

Southwest “maintain[ed] that §1 ‘exempts classes of workers based on their conduct, not their employer’s,’ and the relevant class therefore includes only those airline employees who are actually engaged in interstate commerce in their day-to-day work,” according to today’s opinion.

The view that the localized worker was not engaged in interstate commerce and was therefore subject to arbitration was soundly rejected in today’s opinion. The case may have implications for app-based companies, like Amazon and Lyft, who strongly urged the Court to back Southwest in amicus briefs and reject the use of the FAA Sec. 1 carve-out exemption from arbitration for Saxon.

* * *

The Court has usually been focused on getting cases into arbitration, and that hasn’t meant success for individuals fighting arbitration and seeking court processes.

Yet the three arbitration cases decided this term, all based in employment matters, backed the workers. In addition to affirming today’s employee victory in the Seventh Circuit, last month, the Court ruled in favor of a Taco Bell worker resisting her employer’s motion to compel arbitration in a unanimous opinion by Justice Elena Kagan. The Court found that a party need not show it was prejudiced by the moving party’s actions, but instead focuses on the employer’s actions to indicate whether the employer had waived its right to arbitration. Details on Morgan v. Sundance Inc., No. 21-328 (available at https://bit.ly/3NywXj5) are available on CPR Speaks here.

In the first of the 2021-2022 arbitration cases to be decided, the Court embraced a narrow construction of subject-matter jurisdiction in arbitration matters. The March 31 decision reversed a Fifth U.S. Circuit Court of Appeals opinion that a federal trial court had jurisdiction under Sections 9 and 10 of the Federal Arbitration Act to confirm and overturn arbitration awards. The decision in Badgerow v. Walters, No. 20-1143 (available here) potentially gave the employee, who filed suit over workplace discrimination, a new shot at overturning an arbitration award in state court.

* * *

So in today’s case, the Court also backs a worker trying to avoid arbitration, following similarly the 2019 New Prime v. Oliveira case, where Justice Neil Gorsuch, in his first Supreme Court arbitration opinion, read FAA Sec. 1 to exempt an independent contractor/interstate truck driver from arbitration. The Court has limited the exemption from FAA application to transportation workers “engaged in” interstate commerce only in Circuit City Stores Inc. v. Adams, 532 U.S. 105 (2001) (available at https://bit.ly/2HhwYLu). But since then, the Court has only recognized an FAA Sec. 1 exemption for an independent contractor—a long-haul truck driver—in New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019) (available here).

Today’s decision revisits the limited scope of the FAA Sec. 1 exemption, and says it applies to the original plaintiff/respondent in the case.

First, Justice Thomas notes that Saxon, who is a Southwest ramp supervisor located solely at Chicago Midway, belongs to a class of workers who physically load and unload cargo on and off airplanes, using plain language and textual analysis to put the respondent/original plaintiff in the FAA Sec. 1 exemption. He finds that such workers are “as a practical matter, part of the interstate transportation of goods.” (Citation omitted.)

He used the Circuit City Sec. 1 analysis holding that the exemption applies only to transportation workers to establish the backing for Saxon’s position, finding, “Cargo loaders exhibit this central feature of a transportation worker.”

In analyzing the nature of interstate commerce in a key part of the opinion, Thomas notes, “any class of workers that loads or unloads cargo on or off airplanes bound for a different State or country is ‘engaged in foreign or interstate commerce’”—a point sure to refocus attorneys on the employment arbitration policies of app-based commerce. Amazon, for example, strongly urged the Court to reverse and back Southwest in an amicus brief, available here. (See the docket link above for more amicus briefs supporting both sides.) In a footnote, the Court notes that the issues most important to delivery companies weren’t needed to be addressed to decide Southwest Airlines.

Still, Thomas stopped short of including all airline industry employees as “transportation workers” for purposes of the FAA Sec. 1 exemption, which states, “nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”

In a painstaking dictionary analysis, Thomas notes that seamen and railroad workers are not industry-wide categories, and therefore don’t include the entire industry workforces. The implication is that a job-by-job, task-by-task analysis with the effects on interstate commerce, will be required for exempting workers from arbitration under FAA Sec. 1.

At the same time, the Thomas opinion rejects three Southwest points that sought to keep Saxon out of the exemption and require her to arbitrate under her employment agreement. Similar to the opinion’s rejection of the generalized interpretation of transportation workers that would include all airline workers by Saxon, the Court also states that the idea that the employee must ride on transportation in interstate commerce is too broad a reading of the FAA Sec. 1 language.

Next, Thomas notes that the goods that Saxon loaded only in Illinois were destined for interstate commerce, pointedly rejecting other Southwest-cited cases where the Court found localized activity was not in interstate commerce.

Finally, the opinion rejects a “statutory purpose” argument by Southwest, which claimed that the Seventh Circuit’s Sec. 1 interpretation hurts the pro-arbitration lean of the rest of the statute, particularly FAA Sec. 2, which “broadly requires courts to enforce arbitration agreements in any ‘contract evidencing a transaction involving commerce.'”

“Here,” countered Justice Thomas, “§1’s plain text suffices to show that airplane cargo loaders are exempt from the FAA’s scope, and we have no warrant to elevate vague invocations of statutory purpose over the words Congress chose.”

The opinion concludes, “Latrice Saxon frequently loads and unloads cargo on and off airplanes that travel in interstate commerce. She therefore belongs to a ‘class of workers engaged in foreign or interstate commerce’ to which §1’s exemption applies.”

* * *

While the nation awaits decisions on abortion and gun rights, the decision comes in an unprecedented time for arbitration at the Court. While there are usually one or two arbitration decisions per term, the Court has heard six cases—two consolidated–on how arbitration works during the 2021-2022 term, four of which were argued in March alone.  Highlights of the cases can be found on CPR Speaks, here, including with the preview and argument reports for the three cases already decided, including today’s case. Detailed oral argument coverage for Southwest Airlines v. Saxon can be found on CPR Speaks here; and the preview with background can be found here. The remaining two 2021-2022 Supreme Court arbitration cases are expected to be decided before the current term ends at the end of this month.

* * *

Bleemer edits Alternatives to the High Cost of Litigation for CPR; Knaap, a law student at Columbia University Law School in New York, is a 2022 CPR Summer intern.

[END]

One Declined, One Pending: Scotus Asked to Enforce an Arbitration Award against a Sovereign and an Oil Company

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By R. Daniel Knaap

The U.S. Supreme Court earlier this week declined to hear a case where Saudi Arabian landowners sought to enforce an arbitration award against the Saudi Arabian Oil Co., best known as Saudi Aramco.

The long-running matter, rooted in a nearly 90-year oil development land lease agreement, isn’t over. There’s a companion case from the same petitioners before the Court–against Chevron Corp., Saudi Aramco’s predecessor in the oil exploration and production deal–scheduled to be considered at a Supreme Court conference on June 16.

The Saudi Aramco case explores the limits of sovereign immunity in the face of a request to enforce an arbitral award against a government-tied entity. Now, at least in the Fifth Circuit’s view, the matter’s complex back story was sufficient to deny enforcement of the award against the state-owned enterprise in the absence of a 28 U.S.C. §1605 exception to foreign sovereign immunity.

In contrast, the Chevron case involves the issue of whether its predecessor’s arbitration agreement applies to the dispute.

The petitioners instituted two different enforcement proceedings regarding an $18 billion International Arbitration Center award against Saudi Aramco (Al-Qarqani v. Arab AMOCO, 2020 WL 6748031 (S.D. Tex., Nov. 17, 2020) and Chevron (Al-Qarqani v. Chevron Corp., 2019 WL 4729467 (N.D. Cal., Sept. 24, 2019).

Both the California and Texas U.S. District Courts refused to confirm the award. The Ninth Circuit affirmed the California district court, holding that the enforcement petition should be denied on the merits and not dismissed for failure to state a claim. Al-Qarqani v. Chevron Corp., 8 F.4th 1018 (9th Cir. 2021) (available at https://bit.ly/3zhYVvM). It further denied the petitions for rehearing and rehearing en banc, Al-Qarqani v. Chevron Corp., 2021 U.S. App. LEXIS 33976 (9th Cir. Cal., Nov. 16, 2021).

The case continues. A petition for certiorari in the nation’s top Court for Waleed Khalid Abu Al-Waleed Al Hood Al-Qarqani, et al. v. Chevron Corp., No. 21-1153, is pending and distributed for the June 16 conference.

In the Saudi Aramco case, the Fifth Circuit vacated the Southern District of Texas’s judgment, remanding with instructions that the case should be dismissed for lack of jurisdiction since Saudi Aramco qualified as a foreign state immune from suit under the Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. §1603. Al-Waleed v. Saudi Arabian Oil Co., 19 F.4th 794 (5th Cir. 2021) (available at https://bit.ly/3zgvSZC).

The petition for certiorari in that case, Waleed Khalid Abu Al-Waleed Al Hood Al Qarqani, et al. v. Saudi Arabian Oil Co., No. 21-1335, was denied on May 31; Tuesday’s order declining cert is available here.

* * *

According to the Supreme Court filings and lower court decisions, the case concerns a dispute between Saudi landowners and Saudi Aramco, which is Chevron’s successor in interest and fully owned by the Kingdom of Saudi Arabia. In 1933, an agreement was concluded between Chevron’s predecessor, Standard Oil Co. of California, and Saudi Arabia, which provided for rent payments to private landowners of oil-rich land, who were not a party to the agreement.

A deed of concession was concluded in 1949, which transferred the property from the landowners to Arabian American Oil Co., now Saudi Aramco. The petitioners, heirs of the landowners that were a party to the 1949 deed, claim that the land was leased, not sold, and that the 1933 agreement arbitration provision was imported into the 1949 deed. The petitioners initially sought back rent in Saudi Arabian courts. That proceeding took place in 2011, and a “Saudi Legal Committee” found that the 1949 deed was a sale, not a lease. 19 F.4th 794, 797.

The petitioners commenced arbitration proceedings at the International Arbitration Center in Egypt against Aramco and Chevron entities. Aramco rejected the arbitration and did not participate in the proceedings. The Chevron entities objected but nominated an arbitrator. Initially, the tribunal held that it lacked jurisdiction, but the proceedings were reopened by a panel with different members, resulting in an opinion in favor of the petitioners, awarding them $18 billion. Id. In the aftermath of the arbitration, an Egyptian court convicted two IAC administrators and three arbitrators of fraud, forgery, and other crimes relating to the second proceeding. Id.

* * *

The Saudi Aramco petition presented the following questions: whether a foreign sovereign or instrumentality of a state that (1) is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards–the New York Convention–may assert the FSIA as a defense to enforcement of a foreign arbitral award, (2) accepts and accedes the United Nations Conventions on Jurisdictional Immunities amounts to an express waiver of sovereign immunity under the New York Convention, and (3) fails to timely file a cross appeal from a U.S. district court order that denied the sovereign’s assertion of the FSIA as a defense amounts to waiver and bars a subsequent request for a jurisdictional dismissal on appeal that is based on the merits.

Since certiorari was denied, the Fifth Circuit’s judgment stands. It held that Saudi Aramco is a foreign state under the FSIA since it was “a distinct legal entity incorporated under Saudi law, a majority of whose shares are owned by the Kingdom of Saudi Arabia and whose principal place of business is in Saudi Arabia” and thus “presumptively immune from suit in the courts of the United States.” 19 F.4th 794, 800. This immunity was not waived by the exceptions set out in FSIA’s 28 U.S.C. §1605(a). It was not waived under §1605(a)(1) because “the dispute underlying the arbitral award at issue … is clearly outside its scope,” since neither Saudi Aramco, its predecessor, nor the petitioners were party to the 1933 agreement. Id.

The immunity was also not waived under §1605(a)(2) by Saudi Aramco conducting business in the United States since the arbitration took place in Egypt and “did not cause a ‘direct effect’ in the United States.” Id., at 801.

The expropriation exception provided in §1605(a)(3) also does not apply because the action is to enforce an arbitral award, “not litigation of a property dispute involving international law.” Id.

Finally, immunity also was not waived under §1605(a)(6)’s arbitration agreement exception since neither Saudi Aramco, its predecessor, nor the petitioners were party to the 1933 agreement, and the 1949 deed did not mention arbitration nor did it refer to the 1933 agreement’s arbitration clause. Therefore, the Fifth Circuit concluded, the action should be dismissed for lack of jurisdiction instead of denying the petition for enforcement. Id. at 801-2.

The cert denial allowing the Fifth Circuit decision to stand in turn appears to provide some answers to the petitioner’s questions presented.

First, a foreign sovereign or instrumentality of a state that is a signatory to the New York Convention may assert the FSIA as a defense to enforcement of a foreign arbitral award. Second, a foreign sovereign or instrumentality of a state that accepts and accedes the United Nations Convention on Jurisdictional Immunities does not amount to an express waiver of sovereign immunity under the New York Convention. The third question, however, was not explicitly addressed since the appeal was found to be timely.

* * *

The author, a law student at Columbia University Law School in New York, is a 2022 CPR Summer intern.

[END]

Supreme Court Won’t Hear Rates-Review Arbitration Request, Sending Customer Dispute to Court

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By Russ Bleemer

The U.S. Supreme Court this morning declined to hear a case on whether the nearly century-old Federal Arbitration Act preempts state law—this time, a clash with Tennessee common law on contracts.

The FAA has shown a lot of muscle in the U.S. Supreme Court over its history, and it’s rarely displaced.  Petitioners seeking to avoid arbitration under a state law are almost always sent to arbitration.

That was not outcome in today’s cert denial in Branch Banking and Trust Co. v. Sevier County Schools Federal Credit Union, et al., No. 21-365. The matter also was about arbitrability–not on the merits of a dispute as to whether the respondents get the money market interest rate on their investment guaranteed by a predecessor of the petitioner bank, which wanted the case over its rate-drop arbitrated.

The petitioner bank had required account holders to arbitrate disputes by amending its agreement with the fund holders after it had purchased the predecessor bank.

The respondent account holders’ argument–successful in the federal appeals court at Sevier Cnty. Sch. Fed. Credit Union v. Branch Banking & Tr. Co., 990 F.3d 470 (6th Cir. 2021) (available at https://bit.ly/3K7BxnV)–was straightforward:  The so-called FAA Sec. 2 Savings clause (an arbitration agreement “shall be valid, irrevocable, and enforceable, save upon such grounds as exist at law or in equity for the revocation of any contract “) backs a state-law challenge to the contract. 

And the Sixth Circuit held that there was a lack of mutual assent to the arbitration clause, which is required under Tennessee law. The bank services agreements “in question are clearly contracts of adhesion,” stated the Sixth Circuit opinion.

That opinion stands as a result of the today’s cert denial.

The appeals court criticized the petitioner bank’s unilateral imposition of the arbitration clause and, while noting that the rate promised two decades ago was several times higher than current available rates, it agreed with the plaintiffs’ analysis that the bank couldn’t require ADR where there had been none in the original bank services agreement.

The bank countered in its Supreme Court cert petition, “The Sixth Circuit’s decision is directly at odds with this Court’s recent arbitration decisions and with the law in other courts.”

The issue formally presented to the Court by the petitioner bank was

Whether the Federal Arbitration Act displaces a state common-law rule forbidding companies from adding an arbitration requirement to their standard form contract with customers unless the contract already includes a dispute-resolution clause.

The bank noted in its petition,

The Sixth Circuit’s adoption of a rule that singles out arbitration agreements and subjects them to heightened contract-formation requirements conflicts with [Kindred Nursing Ctrs. Ltd. P’ship v. Clark, 137 S. Ct. 1421, 1424 (2017) (available at https://bit.ly/3GojOWE), which struck a Kentucky rule that “singles out arbitration agreements for disfavored treatment”] and other recent precedents from this Court holding that arbitration agreements cannot be “disfavored” or subjected to more demanding requirements than other contracts. The panel opinion did not cite, let alone distinguish, any of this Court’s modern FAA precedents.

Today’s order denying cert, available here, granted a motion by the American Bankers Association to file an amicus brief, which strongly urged the Court to take the case and reverse the Sixth Circuit. That brief is available at the Court’s docket page linked above (directly here).

The original plaintiffs’ Sixth Circuit success in avoiding arbitration is a rarity once cases reach the U.S. Supreme Court.

The nation’s top Court has taken six arbitration cases over five arguments in the current term. Two have been decided, and three cases, all argued in March’s second half, await decision.  Details on the decisions, arguments, and case previews can be found on this blog by searching on the U.S. Supreme Court here.

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Bleemer edits Alternatives to the High Cost of Litigation for CPR.

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The EEOC Set to Release Two Reports Comparing Online and In-Person Mediation

/ CPR Staff / Leave a comment

By Mylene Chan

The U.S. Equal Employment Opportunity Commission, a federal agency which enforces federal workplace anti-discrimination laws, will release Tuesday two reports on the transition to video mediation from traditional in-person sessions during the course of the pandemic.

The reports’ striking positive view of online ADR points to continued use, post-pandemic.

The EEOC had conducted about 10,000 mediations annually in the past decade–in-person until mid-March 2022, when it transitioned to online dispute resolution due to the Covid-19 outbreak. See “EEOC Mediation Statistics FY 1999 through FY 2020,” at https://bit.ly/38VirmT.

In September 2020, the EEOC commissioned researcher E. Patrick McDermott, a professor of management and legal studies of Franklin P. Perdue School of Business at Salisbury University in Salisbury, Md., with Ruth Obar, a program evaluation scholar based in Manila, Philippines, to conduct an online dispute resolution survey to measure the performance of online mediation against in-person processes.

This survey used the same performance measures employed in previous surveys by the EEOC since 2000 annually to measure participant satisfaction with in-person mediation.

“Our two independent studies of the mediator and participants’ experience in online mediation,  which includes party representatives, leave no doubt that we are seeing the rise of a new and improved model of workplace discrimination mediation,” said McDermott. He added, “Without a playbook, the EEOC mediation program National Coordinator, Stephen Ichniowski,  the District Office ADR Program Managers, and the many program mediators transitioned successfully from in-person to online mediation.  This program’s success and the data should be considered in future dispute resolution design in the courts, administrative agencies, and private models.”

The new releases covering the two studies, “Equal Employment Opportunity Commission Mediators’ Perception of Remote Mediation and Comparisons to In-Person Mediation” and “The Equal Employment Opportunity Commission Mediation Participants Experience in Online Mediation and Comparison to In-Person Mediation,” are expected to be released here Tuesday morning. [UPDATE: The studies were released Wednesday, June 1, and can be accessed directly here.] They indicate that most of the survey participants prefer online mediation over in-person mediation, and that they believe procedural fairness, distributive justice, and access to justice are greater in online mediation. 

Here are the key findings:

  • 92% of charging parties and 98% of employers would conduct EEOC online mediation again.
  • 86% of charging parties and 94% of employers believe that EEOC’s online mediation procedures are fair.
  • 82% of charging parties and 91% of employers regard the overall online mediation as fair.
  • 60% of charging parties and 72% of employers are satisfied with the outcome of the online mediation, a rate higher than the same measure taken for in-person mediation previously. 
  • Nearly 70% of the participants prefer online mediation to in-person mediation.
  • Online mediation affords significantly greater access to justice because employers are more willing to participate in a mediation done online.
  • Employers report higher satisfaction across procedural and due process measures in online mediation.

The EEOC’s results echo and confirm the views of many practitioners who find Zoom mediation to be a successful model. 

John M. Noble, a Greensburg, Pa., mediator who reports he had 267 2021 mediations, shared his positive experience with Zoom:

Having conducted 564 remote sessions in the first 26 months of this Covid era, the mid-2020 notion that in-person ADR is still “better” than Zoom is now near non-existent. The non-travel benefits alone have proven life-altering: when the session is over, you are home or in the office; no more hotels or trains, planes and automobiles; no weather/dangerous highway issues; plaintiffs are expressly more comfortable in their own homes; defense representatives markedly increase efficiencies–at no added costs–participating from their home or office work-stations, given the routine in-person session down-time.

The participants and shared documents are “closer” to me on screen than in-person and I hear better with the head-set. Remarkably, while five of the eight insisted-upon in-person sessions I reluctantly conducted in 2020-22 did not settle (two of the cases saw no offers!), I have seen record numbers of settlement dollars accepted remotely­-over $450 million and counting. Frankly, my location has become irrelevant as I now Zoom with people from any time zone and I very thankfully no longer travel 12-20 hours a week. Beyond sold: . . . remote ADR is here to stay!

Colin Rule, chief executive officer of Resourceful Internet Solutions Inc., which owns mediate.com, commented,

Zoom has revolutionized the practice of mediation. Many mediators conducted their first online mediation via Zoom during the pandemic, and now they won’t go back.  Video conference mediation has become the new normal, with face-to-face processes the exception–a complete reversal from pre-2019. 

Zoom-based mediation helps parties be at their best; it allows for more flexible mediation processes (with more breaks), and it’s much greener (with fewer car miles and airline flights).  Parties prefer Zoom for mediation because of the cost and convenience, and studies are showing mediation over Zoom is equally as effective as face-to-face mediations.  Zoom is constantly improving their platform, and video and audio quality are certain to get even better over the coming years.  Zoom may be the gateway to more technological innovations for mediation in the near future.

Other mediators see advantages and disadvantages of online mediation and will use it if needed . . . but do not prefer it.  See, e.g., Robert A. Creo, “The Post Pandemic Compromise: Hybrid Mediation!”, 39 Alternatives to the High Cost of Litigation 111 (July/August 2021)  (available at https://bit.ly/3wQaxmZ).  

The two EEOC reports confirm that online mediation is widely accepted by mediators and participants. Online mediation, which was initially deemed as a temporary fix, is likely to continue to become mainstream at the EEOC even after the pandemic recedes.

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The author is 2022 Founders’ Fellow of Mediators Beyond Borders International. She is a former CPR intern, and has written for and contributed to this CPR Speaks blog and CPR’s newsletter, Alternatives to the High Cost of Litigation.

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