CPR Amends Its Employment-Related Mass Claims Protocol

The International Institute for Conflict Prevention and Resolution has announced amendments to its Employment-Related Mass Claims Protocol–the ERMCP or Protocol.

The ERMCP provides an innovative mechanism for more efficient and effective resolution of a mass of employment-related cases. The Protocol features a “Test Case Process” followed by a global mediation process informed by the Test Cases.

The ERMCP incorporates CPR’s Administered Employment Arbitration Rules.

An initial set of revisions to the Protocol by a CPR Task Force comprising leading counsel from the plaintiff’s bar, in-house employment counsel, corporate defense attorneys, and neutrals (arbitrators and mediators) was produced in April 2021 in connection with the release of the CPR Administered Employment Arbitration Rules (see CPR Speaks (April 14, 2021).  A second set of revisions that, among other things, incorporated CPR’s Due Process Protections, and makes changes to align with CPR’s updated Diversity Commitment, was promulgated in October 2021 (see CPR Speaks (Oct. 14, 2021).

The just-released Version 2.1 ERMCP amendments arise from CPR’s administrative experience under the Protocol. These changes relate to payments under the Protocol as well as additional clarifications on timing and the opportunity to mediate cases outside the mediation process.

CPR has added a requirement that, subject to any applicable fee waiver, claimants pay a part of the appointment fee as specified on the CPR Fee Schedule, which, in keeping with CPR’s Due Process Protections, will in no event be greater than the court fee required to file an action in a court of competent jurisdiction at the place of arbitration, or if none is specified, in the county of the claimant’s primary place of residence.

The Protocol also specifies that the appointment fee from both the claimant and the respondent in a particular case must be received by CPR prior to provision of a slate of candidates for that case. See Paragraph 4 of the Protocol here and the CPR Fee Schedule for details.

In light of questions received, Version 2.1 also makes clear that the parties may engage in a mediation (other than the ERMCP) at any time during the mass claims process, including during the Test Cases. It provides that any such mediation will be administered by CPR under the CPR Mediation Procedure. (See Footnote 21 of the Protocol.)

In response to other questions, Protocol Paragraph 6 also clarifies that the parties may jointly request an abeyance in connection with a mediation or otherwise of any pending arbitration. If an arbitrator has been appointed, the arbitrator will decide whether to approve such request.

CPR Dispute Resolution Services Senior Vice President Helena Tavares Erickson noted, “We always seek to improve on our innovations as we learn from experience and always welcome and appreciate the feedback provided by the users of our services and products.”

FAQs for the new ERMCP 2.1 can be found here

[END]

Circuit Court Vacates an Arbitration Award after NFL Agent’s Fraud

By Shourya Arora

Courts don’t often reverse arbitral awards, but France v. Bernstein, No. 20-3425 (3d Cir. Aug. 9, 2022) (available at https://bit.ly/3Kl7Pw8), is an exception and merits attention.

Courts vacate an arbitration award only in limited circumstances. Federal Arbitration Act Section 10(a)(1) authorizes courts to vacate arbitration awards that were “procured by fraud, corruption or undue means.” The FAA authorization for a court to vacate an award procured by fraud is precisely what Jason Bernstein claims was perpetrated by Todd France in the arbitration underlying this suit.

Bernstein and France are certified agents registered with the National Football League Players Association to represent NFL players in contract negotiations. Bernstein, according to the Third U.S. Circuit Court of Appeals opinion in the case, also owns Clarity, which represents professional athletes for marketing and endorsement contracts.

Kenny Golladay signed a standard representation agreement with Bernstein in 2016, before Golladay’s rookie season with the Detroit Lions. He signed a separate agreement with Clarity for representation in endorsement and marketing deals. In January 2019, Golladay terminated both contracts just three days after participating in an autograph-signing event Bernstein had no role in arranging. Golladay, who is now a wide receiver for the New York Giants, signed with France immediately after the autograph event.

Bernstein believed France was behind the autograph event and filed a grievance against France under the NFLPA dispute resolution provisions. The matter went to arbitration. In pre-hearing discovery, France denied possessing any documents about the autograph event or any involvement. France’s lies were not uncovered until after the arbitration was decided in his favor.

The Third Circuit reversed the district court’s confirmation of the arbitration award because France’s fraud procured it. France’s fraud was not discoverable through reasonable diligence and was material to the case, according to the opinion.

The panel, in a unanimous opinion by Circuit Judge Kent A. Jordan, cited Odeon Cap. Grp. LLC v. Ackerman, 864 F.3d 191 (2d Cir. 2017) (available at https://bit.ly/3dPoYBU), in which the Second Circuit addressed the standard for vacating an award on the ground that it was procured by fraud. Here is the standard as stated by the court:

. . . [T]o vacate an arbitration award on the ground that the award was fraudulently procured, the petitioner must demonstrate the fraud was material to the award. That is, there must be a nexus between the alleged fraud and the decision made by the arbitrators. The petitioner, however, need not demonstrate that the arbitrators would have reached a different result. In this case, Odeon failed to establish that Ackerman’s alleged perjury impacted the arbitration award. The district court, therefore, correctly denied the petition to vacate.

Most courts similarly have been reluctant to vacate an arbitration award on the statutory FAA basis of fraud. More than a mere showing of fraud is necessary. It must be demonstrated that there was a connection between the fraud and the arbitration decision. The predicate to a vacation of an arbitral award on the grounds of fraud has been explained as follows:

  1. The fraud must be materially related to an issue in the arbitration.
  2. The fraud must not have been discoverable with due diligence before or during the arbitration.
  3. The fraud must be established by clear and convincing evidence.

See, e.g., France, at 18-19.

Fraudulent conduct brought to the arbitrator’s attention before an award does not constitute fraud sufficient to justify overturning the award. Also, the requisite fraud has been found absent even where an arbitration award was made after one of the witnesses gave perjured testimony but where the arbitrators did not consider the witness’s testimony in making the award. Terk Techs. Corp. v. Dockery, 86 F. Supp. 2d 706, 709-10 (E.D. Mich. Div. 2000) (available at https://bit.ly/3AU4XTX).

As indicated by the cases mentioned above, it is complex but possible for a court to vacate an arbitral award based on fraud, even though proving fraud is tricky and usually requires extensive discovery. The takeaway is that even though vacating an arbitration award is an uphill battle, a court can still provide a safety net if a party doesn’t play by the rules–that’s the France result.

* * *

The author, an LLM student at the Straus Institute for Dispute Resolution at Pepperdine University’s Caruso School of Law in Malibu, Calif., is a CPR Fall 2022 intern.

[END]

Sharing Resources:  Alternative Dispute Resolution Academics Create a Repository of Best Teaching Practices

By Ellen Waldman

What kind of legal professionals labor long and hard over their intellectual property . . . and then give it away? Law professors who teach alternative dispute resolution, that’s who.

In continuing acts of generosity not characteristic of the academy at large, educators focusing on providing students with knowledge and skills in conflict resolution mechanisms apart from litigation gather yearly to share teaching ideas and innovations with their friends and  colleagues. 

This community forum, under the banner of the American Bar Association’s Section of Dispute Resolution, often begins slowly, with participants feeling shy about presenting their newest simulation or in-class exercise as a practice worth emulating. But with the organizers’ encouragement, confidence grows, participants begin to shout out their contributions with growing enthusiasm, and the group takes on the call-and-response cadence of a jubilant church meeting.

ADR professors look forward to being with their colleagues, whether in the same room or virtually.  But, for those who can’t attend–the organizers say they hope to resume in-person gatherings soon–the ideas presented are dutifully captured in a document titled the Legal Educators Resource Share, which is made widely available.

The resource is a valuable tool for practicing attorneys and ADR professionals, too. It is now more than 25 pages long, with hundreds of more pages of appendices–the actual, ready-to-use, material that teachers can hand out in class, such as simulation roles, out-of-class assignments, in-class worksheets, etc.  

The resource is the brainchild of Sharon Press and Barbara “Bobbi” McAdoo of Mitchell Hamline School of Law, in Saint Paul, Minn. The decade-old effort, with support from the ABA Dispute Resolution Section, began when they convened a group at the ABA DR Section’s Annual Conference and encouraged attending professors to submit and describe teaching resources that could be shared with the teaching community.

They compiled those resources in a document and made them widely available on academic sites as well as the blogosphere. When Prof. McAdoo retired, Prof. Noam Ebner of Creighton University in Omaha, Neb., took her place as co-organizer.

The resource document is divided into several categories, all of which can be helpful to novices and veteran professors alike: list servs; conferences; teaching/training materials, videos, and more. A brief sampling of the ideas reveals the contributors’ creativity and focus on securing student engagement.

Here are examples of the materials:

  • A discussion of the use of mindfulness meditation in a Legal Negotiation Class, complete with references to articles exploring the connection between mindfulness practices and creativity, feelings of well-being and the reduction of bias.
  • Guidance offered by the International Council for Online Dispute Resolution website, including  the ICODR’s online dispute resolution training standards.
  • “A Trisolan Map: Getting to Yes Exercise,” designed to help students make the jump from understanding the integrative negotiation method in theory, to actually applying it before engaging in a negotiation scenario. The exercise is a solo activity where the student plays the role of a fictional character in a fictional world, making negotiation decisions that seem very real. (For non-sci-fi immersives: The exercise is based on a Star Wars-inspired scenario.)
  • An article titled “Designing binge-worthy courses: Pandemic pleasures and Covid-19 consequences,” which draws on “the literature examining psychological and neuroscientific aspects of binge-watching television shows” to suggest approaches “to designing courses our students will want to binge-learn.”
  • A website developed by the ABA’s Legal Education , ADR, and Practical Problems (LEAPS) Project, designed “to help faculty incorporate practical problem-solving . . . into their instruction of a wide range of courses, including doctrinal, litigation, transactional and ADR courses.”
  • The “Stone Soup” Dispute Resolution Knowledge Project, offered by University of Missouri School of Law, Columbia, Mo., Professor Emeritus John Lande , which contains resources and tools for those who want to incorporate practitioner interviews and case observations into their classroom assignments.
  • Links to a variety of videos demonstrating various mediation styles and techniques. One of the most prolific videographers is Boston-based Suffolk University Law School Prof. Dwight Golann, who has shot and edited many videos, housed at the ABA/Suffolk University Law School Dispute Resolution Video Center and made openly available to all dispute resolution professors.   
  • Role-play simulations treating diverse subjects, ranging from probate to community divisions, to college spats, to European Union policy wrangles.
  • Exercises to assist students with getting comfortable on Zoom.
  • “Donald Trump and Stormy Daniels: An Arbitration Case Study,” containing excerpts from Daniels’ suit seeking to invalidate the arbitration clause embedded in the settlement agreement she signed with the former president; the TRO issued by an arbitrator that she violated by filing suit, and excerpts from an article written by the submitter, Brian Farkas–a Yeshiva University Benjamin N. Cardozo School of Law adjunct professor and a New York-based Arentfox Schiff associate–examining the public policy issues raised by the case.   

The list is extensive.

What is particularly noteworthy is the alignment between what these educators profess in the classroom and what they actually do. As proponents of dispute prevention and management, they teach their students to be creative problem solvers, to search for mutually beneficial outcomes and to “grow the pie”–not just look for ways to self-servingly apportion it.

And this is how they approach their life’s work. Far from hoarding their intellectual capital, they spread it around, assuming that if the next generation of lawyers has the benefit of the best teaching and writing out there, then we all win.  

The current version of the Legal Educators Resource Share linked above, and recent past versions, are located at ADRhub.com, a website maintained by Creighton’s Negotiation and Conflict Resolution Program. There also are plans by the organizers to have open access on the Mitchell Hamline School of Law Dispute Resolution Institute web page, which provides its DRI Press books and other teaching materials.

* * *

The author, a longtime former law professor, joined CPR earlier this year and is Vice President, Advocacy & Educational Outreach.  Her bio on CPR’s website can be found here.

[END]

CPR Council Meeting: Abraham Lincoln and Dispute Resolution

By Xin Judy Wang

The June 22 CPR Council meeting featured a presentation on Abraham Lincoln and dispute resolution by the International Institute for Conflict Prevention & Resolution’s former CEO & President Thomas J. Stipanowich, the William H. Webster Chair in Dispute Resolution and a law professor at the Straus Institute at Pepperdine University’s Caruso School of Law in Malibu, Calif.

He served as CPR’s president and CEO from 2001 to 2006, and returned to discuss his project, “The Lincoln Way: Abraham Lincoln as a Problem Solver and Manager of Conflict.” 

Stipanowich began his presentation discussing the United States’ fascination with Lincoln, the 16th president. Possibly the nation’s most familiar historical figure along with George Washington, Lincoln lived one of the most documented and written-about lives from the nineteenth century. Almost everyone feels some level of familiarity with Lincoln, attaching him to particular principles, life experiences, or lifestyles. Lincoln was also a self-taught lawyer who worked on a broad spectrum of cases ranging from pig-stealing incidents to representation of railroads.

Stipanowich said he was attracted to Lincoln’s legacy through a telling quote: “Discourage litigation. Persuade your neighbors to compromise whenever you can. As a peacemaker the lawyer has a superior opportunity of being a good man. There will still be business enough.” The quote came from Lincoln’s lectures to fellow lawyers around 1850, many of whom were trial attorneys.

From this quote, Stipanowich saw a striking similarity between Lincoln’s peacemaking spirit and CPR’s mission to reduce conflict to enable purpose.

As Stipanowich’s project title suggests, Lincoln was a lifelong problem solver and a conflict manager.

Lawyer Lincoln encouraged fellow trial lawyers to discourage litigation and always sought ways to resolve conflict out of the courtroom to avoid the often-unsatisfactory result through trials. Stipanowich found evidence that Lincoln was an informal mediator and had served as an arbitrator. Once, he organized a minitrial with a judge outside the court, with the judge rendering a nonbinding decision that settled a dispute without going to trial.

Stipanowich found Lincoln recognizing that, especially for reputational conflict–a popular type of suit at the time–going to trial is not the best way, whether one is representing the plaintiff or the defendant. It was better to reach a negotiated settlement privately.

As a politician, Abraham Lincoln navigated across party lines to achieve resolutions in the context of a mega-negotiation to address every stakeholder group. He had contacts in different parts of the country, reaching out to border states and southern politicians. It was his awareness of changing circumstances that led to his campaign leading to the Emancipation Proclamation. The African American community’s support was critical for restoring the union as a growingly important constituency and a necessary force in the military.

As an individual, Lincoln wrestled with internal conflict on self-image, religion, and relationships. Stipanowich found Lincoln to be tremendously influenced by reading the autobiography of Ben Franklin as a teenager, thus developing an enduring rationalist spirit. Lincoln was clear in his mission and ambition: “Every man is said to have his peculiar ambition. Whether it be true or not, I can say for one that I have no other so great as that of being truly esteemed of my fellow men, by rendering myself worthy of their esteem.” In pursuit of such honor and respect, Lincoln wrestled with depression, a broken engagement, and an avoided duel.

Through navigating conflicts and periods of crisis stemming from his internal and external conflicts, Lincoln built and rebuilt a transformational leadership. Lincoln’s rational, problem-solving spirit is just as relevant today for lawyers, corporations, and interested parties. In Stipanowich’s 2009 article, “Lincoln’s Lessons for Lawyers,” he summarized Lincoln’s legal practice principles:

  1. Use litigation as a last resort—and be frank with your client about its costs and risks.  
  2. Try to be objective in assessing your client’s case; avoid “irrational optimism.” 
  3. Begin negotiating cooperatively and encourage the reliance of others by behaving in a logical and predictable way. Look for trade‐offs.
  4. Seek creative ways of bridging the gap to an agreement that achieves a client’s key goals and priorities in a simple, straightforward manner.
  5. Do not place your own financial interests or ego above the interests of the client.

Thomas, Stipanowich, “Lincoln’s Lessons for Lawyers” Dispute Resolution Magazine 18  (Feb. 1, 2010) (available at https://bit.ly/3INyalO).

* * *

The CPR Council, the governance body of the CPR Institute, promotes the practice of more efficient and effective dispute prevention and resolution. It oversees the development of dispute management resources and tools. The Council’s web page is available at www.cpradr.org/about/cpr-council.

In addition to Tom Stipanowich’s presentation, the June 22 Council meeting also discussed the updated Council Charter, new Council programming, CPR Dispute Resolution Panelists, CPR’s new Immediation Platform for dispute resolution services, and the revised CPR Diversity Commitment. The meeting concluded with a networking session.

* * *

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]

Judges as Mediators, and the Issues that Won’t Go Away

By Mnotho Ngcobo

If you were to ask a layman what mediation is, the answer would probably be something along the lines of, “a private dispute resolution process where an independent private mediator would attempt to assist parties to reach an agreement/solution to whatever dispute they may be facing.”

But one of the problems with the typical layman’s mediation view is that it doesn’t account for a continually emerging group of individuals working their way into this ADR process–the judicial officers, including judges and magistrates (and noting that different countries have different names for these officials).

Often, parties go to mediation to avoid facing a judicial officer. That’s arguably the best part about ADR . . . or it used to be. Judicial officers are employed to adjudicate disputes. They are trained to uphold law and rules, while private mediators are specialists trained to facilitate disputes–they aren’t primarily focused on procedure, for example, because mediation by its nature is flexible and not rule-based.

What happens when a judicial officer AKA a judge mediates a case? What issues does it raise for the parties in disputes?

The truth is that parties often fear judicial officers, and when a judicial officer is facilitating a mediation, parties might not be comfortable. There is then a risk that a party would agree to something out of fear: What happens when the same judicial officer who facilitated the mediation between the parties is tasked with running the fairness hearing? This could cause problems, and some might cry “judicial overreach.”

An interesting case where the judicial officer facilitated the mediation and was also tasked with running the settlement agreement’s fairness hearing was decided earlier this year in McAdams v. Robinson, 26 F.4th 149 (4th Cir. Feb. 10, 2022)(available at https://bit.ly/3aECNBO).

This case arises from a class action lawsuit against Coppell, Texas, finance company Nationstar Mortgage LLC, alleging that Nationstar was in breach of the state and federal consumer protection laws, failing to timely acknowledge receipt of class members’ loss mitigation applications, respond to the applications, and diligently obtain documents to process them.

The case was litigated over six years. In 2017, a Maryland-based U.S. District Court judge referred the case for “Settlement or other ADR conference” before Magistrate Judge Timothy J. Sullivan, of Greenbelt, Md. In March 2020, the parties were ordered to conduct mediation. In June 2020, the parties filed a notice of settlement and a joint motion to proceed before the magistrate judge who had mediated the settlement. Among other things agreed upon in the proposed settlement agreement was that Nationstar would pay a $3 million relief fund, consisting of:

  1. Administrative expenses up to $300,000;
  2. Attorneys’ fees;
  3. A service award to the class’s representative; and
  4. Class claims.

Any remainder, the Fourth Circuit opinion noted, would go to a nonprofit that advocates for consumers. In exchange for the settlement relief fund, all claims against Nationstar would be released.

The magistrate granted the preliminary approval of the settlement agreement and scheduled a fairness hearing.

Petitioner McAdams, who had filed suit against Nationstar in a California action, filed an objection to the proposed settlement agreement. She maintained that the class notice was insufficient; the settlement was unfair, unreasonable, and inadequate; the release was unconstitutionally overbroad, and the attorneys’ fee award was improper.

Objection Overruled

The magistrate judge who mediated the case overruled McAdam’s objections and held that the distribution of the notice was sufficient; the settlement terms were fair, reasonable, and adequate; and the release was not too broad. The magistrate also went on to approve the $1.3 million attorney’s fee.

On appeal, the Fourth U.S. Circuit Court of Appeals affirmed in a unanimous opinion by Circuit Judge Albert Diaz.

The appeals court did not deal in detail with the issue of the magistrate judge having a dual role, as both a mediator and the judge approving the settlement.

Yet petitioner McAdams attacked the magistrate judge’s jurisdiction, holding that she did not consent to have the magistrate judge hear her case. Federal law provides that with the “consent of the parties,” a magistrate judge may conduct “any or all proceedings . . . and order the entry of judgment.” 28 U.S.C. § 636©(1). McAdams argued that the word “parties” includes her as an absent class member.

But the appeals court rejected McAdams’s assertion and held that absent members are not ‘within the contemporary meaning of the term “parties” as used in § 636.

McAdams also argued that this case presents a serious conflict of interest because the magistrate judge both mediated and approved the settlement agreement. The panel noted that it did not deal with this issue because McAdams did not “support that assertion” nor “preserve [it] for appeal.” The opinion states that McAdams did not move for the magistrate judge’s recusal or otherwise object. For those reasons, the Court did not deal with the conflict issue.

The Fourth Circuit has addressed with the issue of objector requirement in 1988 Trust for Allen v. Banner Life Ins. Co., 28 F.4th 513 (4th Cir. 2022) (available at https://bit.ly/3o47kvZ). In the case the objector argued that there was no burden on its part to show that the settlement was unfair, but rather the burden rested on the parties that sought settlement approval. The appeals court rejected this argument and held that the objector must clearly state its case to allow the other parties to fully respond and for the court to evaluate the issues. The court held that it is only when a sufficiently specific objection has been made, that the parties seeking settlement approval have the burden of proof.

The objector, like McAdams, failed to support it arguments.

The McAdams case creates severe implications for the absent class members. It may seem like the courts afford them less protection. Class actions not only affect the rights of the named plaintiffs, but also the rights of the absent class members. The court must play a major role in ensuring that the rights of all class members are recognized and protected.

The McAdams appeals panel held that absent class members are not parties to the action within the meaning of section 636(c), and, therefore, absent class members do not need to consent should the named plaintiff and defendant file a consent.

Removing and/or limiting such a right should be accompanied by some form of protection. This means that McAdam’s conflict-of-interest argument plays little to no role in this case since she, and others in her position, cannot object nor consent as absent class members.

The Magistrate’s Dual Role

Presiding judicial officers have long been performing this dual role of mediating and approving settlements. Some scholars argue that this dual role improves access to justice–in that there is no need to hire a private mediator, thus reducing costs for the parties involved.

Others counter that the dual role creates a conflict of interest. A judicial officer who mediated a case might be biased once the official has to decide on the same matter at a fairness hearing.

One of the biggest and most persistent issues is that a judicial officer determined to settle a case “has enormous power to coerce a settlement.” Patrick E. Longan, “Bureaucratic Justice Meets ADR: The Emerging Role for Magistrates as Mediators,” 73 Neb. L. Rev. (1994) (available at https://bit.ly/3z8fPMQ). The court can instill in the parties a fear of retaliation which would make going to trial unappealing.

Lawyers representing their clients before the judicial officer serving as a mediator might feel compelled to urge clients to accept whatever the judicial mediator is saying to avoid alienating the court, or be on the wrong side of the judicial officer, which would make their future cases before that judicial officer hard.

So while it may seem like a good idea to have judicial officers serve as mediators, it still can create some problems. A judicial officer who mediates a case might have his or her objectivity questioned later because, during mediation, parties will disclose information and the mediator would weigh in on that and might even advise the parties of the cons of going to trial. The judicial officer runs the risk of being committed to one view of the case.  

The risks of judicial officers serving as mediators far outweigh the benefits. In McAdams, the argument of conflict of interest could have been avoided if a different judicial officer had decided on the fairness hearing. The moment the magistrate judge ran the fairness hearing, the conflict arguments advanced above were triggered.

As McAdams demonstrates, the area continues to be one of intrigue both for case management efficiency, and the problems inherent in its use.  See a new article on the topic at Melissa B. Jacoby, “Other Judges’ Cases” NYU Annual Survey of American Law, Vol. 72, 2022 Forthcoming, UNC Legal Studies Research Paper (June 30, 2022) (available at https://bit.ly/3cj2PuY).

For more on McAdams, see Donald L. Swanson, “Judicial Mediator Serving As Deciding Judge In Same Case: An Overreach? (McAdams v. Robinson)” mediatebankry blog (Feb. 22, 2022) (available at https://bit.ly/3aEY3HC).

* * *

The author, a South Africa attorney who received his LLM in dispute resolution from University of Missouri-Columbia Law School in May, is a 2022 CPR Summer intern.

[END]

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

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).

[END]

2021-2022 SCOTUS Arbitration Wrap-Up

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

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. 201573, 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?

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

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 StatesNo. 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.

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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.

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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.

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