General Jim Mattis during his Zoom #CPRAM21 keynote on Jan. 28.
By Amy Foust
Thursday’s CPR 2021 Annual Meeting lunchtime keynote by James N. Mattis, a former U.S. Secretary of Defense for the first halt of President Trump’s term and a four-star general, reflected on conflict resolution and prevention for the business audience.
Mattis began his comments by musing on the irony in inviting a war general to #CPRAM21, to speak to a group devoted to preventing conflicts, but went on to articulate a clear and concise plan for national reconciliation and healing. He emphasized committing to local civics action, and relying on listening skills.
Mattis is currently a senior counselor at the Cohen Group, a Washington, D.C. consulting firm founded and headed by former U.S. Senator William Cohen, who preceded Mattis as defense secretary by 20 years. Mattis was defense secretary from January 2017 to January 2019.
In his presentation, Mattis returned frequently to the theme of handing the world off to the next generation in the same or better condition than current leaders inherited it. He noted that often means working closely with people with whom you disagree, people who may be inexperienced, ill-spirited, or just wrong.
It also means admitting when predicted outcomes turn out differently. He said that people of opposing viewpoints need to work together to address issues, which usually starts with relatively small tasks where there is broad consensus on how to improve—he mentioned education and infrastructure–and then working up to bigger and more divisive issues.
Mattis encouraged the audience to hold close people whose behavior offends, because, he said, “I’ve never seen it help when we cut people off in terms of them becoming more ethical in their performance.”
Invited by the moderator, CPR President & CEO Allen Waxman, to offer advice to a Zoom room of conflict resolution professionals predominated by lawyers, Mattis urged restraint from over-specific rules, which can lead to “brittle” situations and illogical outcomes. He mentioned the importance of building trust before a crisis.
Mattis recounted stories of watching great leaders build trust by listening to their counterparts, learning from them, and helping them. He recounted General George Washington’s work with an untrained volunteer army that went on to defeat the world’s best army, and would go on to defeat Napoleon’s army just a few years later.
General Mattis said Washington’s secret was “very boring”—
He would listen, and he would listen with a willingness to be persuaded. He would actually change his views. He listened to these guys from Delaware who went out on the water everyday and they kept in their own boat and now they’re in the army. And the guy from South Carolina who couldn’t even understand those funny-talking people from Boston . . .
He’s learning from them, as he’s listening he’s willing to be persuaded. He listens. He learns. This is showing respect and when he does this, he helps them. He helps them with the most . . . simple things at times like getting socks and warm coats and blankets. He does anything he can to help, and only then does he lead.
Citing was he said was the business community’s “more practiced effort” for defining and solving problems, Mattis called on the meeting attendees to apply their problem-solving skills to matters of public importance. Serve on school boards, he said, or the city council.
“Run for office, if that’s your bent,” suggested Mattis, “but spend time giving back in the governance area—local, state, federal—because we need what business is bringing right now.”
Answering his own question as to why local action is important, General Mattis concluded, “The country’s worth it.”
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The author is an LLM candidate studying dispute resolution at the Straus Institute, Caruso School of Law at Malibu, Calif.’s Pepperdine University, and an intern with the CPR Institute through Spring 2021. #CPRAM21 continues on Friday, Jan. 29; registration is free at www.cpradr.org.
Bash, a three-decade veteran at the news network, brought an inside-the-Beltway view and application of negotiation and conflict resolution techniques to an online audience of about 250 conflict resolution professionals from corporations, law firms, academia and government.
[CPR’s Annual Meeting has two full days of program on Thursday, Jan. 28, and Friday, Jan. 29. Registration for the first online event is free and open to the public. See www.cprmeeting.org for the agenda and sign-up.]
Bash described a Capitol Hill where dispute resolution skills seem to be less valued—if not disappearing altogether. “When I first began walking the halls of Congress, it was so different in terms of negotiation and deal making, in terms of conflict resolution,” she said at the outset, “It was different in that–name your topic, immigration, . . . Medicare reform . . . annual budget negotiations–there were always conflicts and partisan battles. But there were also meetings. There were also discussions.”
Bash said that she and her colleagues “used to find rooms where [Capitol Hill legislators] were negotiating across party lines,” and wait out the talks to report the results.
“The expectation was that there would be a deal,” she said. “They didn’t know what, but the expectation was that there would be some deal.”
Things began to change, she said, well before the Trump Administration: fewer meetings, fewer negotiations, with compromise happening less and less, often focused on “low-hanging fruit” like agriculture and defense bills that have many common constituent interests.
Senators and House members, explained Bash, simply weren’t talking like they once did. They weren’t as likely to sit down with one another, she said, and weren’t as likely to have common ground to foster negotiations and address policy conflicts.
Bash offered the meeting attendees several reasons that she said she believes have contributed to the decline in negotiations and the increased impasses in producing federal legislation.
First, she said that lawmakers stopped moving their families to Washington. She said it has origins in political calculation, with many lawmakers attacked because they lost touch with their districts. “A fair criticism in a lot of states,” said Bash.
Unfortunately, she reported, the effect has now become extreme, with members going home weekends “understandably to see their family and not scheduling votes until Monday night or Tuesday.” That doesn’t leave much time to negotiate across party lines, said Bash, and the Senate and House members “don’t communicate the way they used to.”
A second reason for the decline, said Bash, is money. First is the obvious fundraising that is required to mount a House or Senate campaign. Instead of taking time to have dinner or a cocktail with someone across the aisle, she said, candidates are “racing out of the building to go to a fundraiser” or to their party headquarters to dial for dollars.
There’s more. Bash attributed her analysis of the second part of the money factor to “a senior person in the Trump campaign,” who she said pointed out to her the significance of the candidates’ emphasis on the work involved in recruiting small-dollar donors, due to caps on individual donations.
“It connects to grass roots,” said Bash, explaining further, “It’s a talking point. It’s a great form of democracy.” But the incentives of the appeal often means pitching to “the extremes of the party,” she said.
That, Bash concluded, contributes to a gulf that has widened between the parties and contributed to the decline in negotiation efforts.
In addition, gerrymandering has gotten “so much worse,” she said, and with members worried about being primaried by a member of their own party, let alone the opposition, they aren’t looking to middle ground.
And a fourth factor, she said, is the Internet and social media.
President Biden, explained Bash, advocated in the 2020 campaign for a return to the form of face-to-face negotiation that characterized much of his political career.
“Can he recapture that?” Bash asked. She said the first test will be on the coronavirus stimulus bill. His initial $1.9 trillion proposal, she said, is a “pie in the sky” first move that the president clearly hopes will spark talks.
Countering the above trends, and an “anecdote to give hope,” Bash noted that the Senate women pre-pandemic had met monthly for an off-the-record, no-staff dinner, which helped break common ground. She suggested that she expects that and similar efforts to return in the new Congress once it’s safe for such events.
She also cited the weekly prayer breakfast attended by members of the Senate as way for them to get to know one another and increase communications.
The biggest problem in resolving conflicts, Bash indicated, is the beliefs by many citizens in untruths.
“I don’t know what the answer is,” she lamented, adding, “People right now are not coming from the same set of facts. It is so hard to bridge a very deep divide when you don’t agree on the same set of facts.”
She pointed to competitor Fox News, and conservative media. Conservative senators, she said, are “in a tough spot.” She said, “It’s very hard to reason with people who believe a lie and don’t believe in a set of facts,” referring to debunked claims of election fraud.
As to her own role, said Bash, “all we can do . . . in the media is point out things that aren’t true.”
Bash concluded her nearly 45-program with interview questions from host Allen Waxman, CPR’s president and chief executive officer, and from Zoom audience members.
During the Q-and-A, Bash said that the media’s role since she started at CNN in the 1990s had changed considerably, and returned to the problem of reporting facts today. “The truth is more important than ever and you can’t just rely on the traditional journalistic formula of ‘Republican John Doe says X’ and ‘Democrat Jane Doe says Y.’ . . . You can’t do [that] when Jane Doe, [a] member of Congress, isn’t telling the truth. So we just have to stand up for truth in a way we never did.”
Bash went further: “The first time I had to come out and say, ‘What you just heard from the president of the United States is not true,’ I felt like I was going to throw up. . . . Then it happened over and over. The deeper it got, the more of a responsibility, we all felt.”
She said with a sigh, “I will not take our role in democracy for granted, ever.”
After discussing the Jan. 6 attack on the Capitol and the inauguration in response to questions, Waxman and an audience member combined to ask what the dispute resolution community could do.
First, Bash said that she didn’t think there would be any fundamental changes in the political system such as a new party.
The ADR community can best act at the local level, Bash suggested. She urged attendees to talk to their neighbors and apply their skills to develop understanding. She conceded that she wasn’t sure how to fully address misinformation, “the echo chamber, and [the focus on] only information that addresses . . . preconceived notions.”
But Bash concluded that the news business—and by extension, the ADR community—has to address what is in front of it. “We have to rightly get back to the human element of things around us,” she said.
The panel returns to CPR Speaks and YouTube to analyze the Monday Henry Schein dismissal–a one-line decision–just a month after the Court heard oral arguments on the issue of how a contract carve-out removing injunctions from arbitration affects the delegation of the entire matter to arbitration.
In fact, the Dec. 8, 2020, Henry Schein oral argument repeatedly turned to an issue in the rejected Piersing case on the effectiveness of the incorporation by reference of arbitration rules in designating an arbitration tribunal to decide whether a case is arbitrated, rather than a court deciding whether the matter is to be arbitrated. A cross-petition by Archer and White asking for review of the incorporation by reference of the arbitration contract’s American Arbitration Association rules was declined by the Supreme Court the same day it agreed to hear the carve-out issue last June.
Our panel discussed these issues after the oral argument on this blog. See “Schein II: Argument in Review,” CPR Speaks (Dec. 9) (available at http://bit.ly/2VXfyIa) (in which the panelists also discuss their work on an amicus brief in the case, a subject that arose in this post’s video).
You can see today’s per curiam decision on the Supreme Court’s website here.
Monday’s Henry Schein dismissal ends a long period of Supreme Court litigation in the case that also included a 2019 U.S. Supreme Court decision. For now, the case returns to the Fifth Circuit for proceedings on whether the parties properly intended to arbitrate the case.
Details on the Supreme Court’s Monday cert denial in Piersing v. Domino’s Pizza Franchising LLC, No. 20-695, are available on CPR Speaks here.
For more analysis on the Henry Schein dismissal, see Ronald Mann, “Justices dismiss arbitrability dispute,” Scotusblog (Jan. 25, 2021) (available at http://bit.ly/2Yh9U4O), in which the Columbia University professor and Scotusblog analyst concludes that
it seems likely that the justices ultimately decided that they couldn’t sensibly say anything about this matter without addressing the question of whether the contract called for arbitration of the gateway question. Because they had declined to call for briefs on that question, it did not make sense to address it here. A logical course of action, then, was to dismiss the matter from the docket, providing a rare victory for a party opposing arbitration.
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The author edits Alternatives for the CPR Institute.
If the U.S. Supreme Court appeared frustrated at last month’s arbitration argument in Henry Schein Inc. v. Archer and White Sales Inc., No. 19-963, this morning’s one-line decision confirmed it.
The Court today dismissed the entire case without a decision on the merits. The entire per curiam decision: “The writ of certiorari is dismissed as improvidently granted.”
You can view it on the Supreme Court’s website here.
The immediate effect is that respondent Archer and White Sales sees a big win: It will get the determination of whether its long-running case over a medical equipment contract dispute is to be arbitrated made by a judge, not an arbitrator. A Fifth U.S. Circuit Court of Appeals decision now stands. See Archer & White Sales, Inc. v. Henry Schein, Inc., 935 F.3d 274 (5th Cir. 2019) (available at http://bit.ly/2NC7EmL).
Archer and White contended that a delegation agreement sending a matter to arbitration did not “clearly and unmistakably” send the case to arbitration because of a contract carve-out for injunctions.
With a one-line dismissal, it’s unknown why the Court did what it did. In shutting down the case, it may be backing Archer and White’s and the Fifth Circuit’s view.
Or it may have reconsidered a point that Henry Schein’s successor status to the contract didn’t sustain its arbitration demand.
Or, in a point returned to repeatedly in last month’s argument, the Court may have botched the case on its own. When it granted Henry Schein’s cert petition on June 15 on the carve-out issue, the Supreme Court simultaneously rejected Archer and White’s cross petition challenging the determination of arbitrability of the case on a question of incorporation by reference. The cross petition contended that the “clear and unmistakable” evidence of an intent to arbitrate was insufficient; the contract incorporated American Arbitration Association rules that include a provision that arbitrators decide arbitrability.
Even though the Court rejected the cross-petition, the issue returned in the December arguments, at times overwhelming the discussion of the question of the carve-out’s effect. For more on the argument, see “Schein II: Argument in Review,” CPR Speaks (Dec. 9) (available at http://bit.ly/2VXfyIa).
One thing is certain: The Court won’t use a follow-up petition to address the incorporation-by-reference issue, which would have interpreted the standard from the Court’s seminal decision on arbitrability, First Options of Chicago Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (available at https://bit.ly/39fAwcR).
That’s because a case that a petitioner and an amicus stated presented the issue cleanly—unencumbered by the carve-out issue and Henry Schein’s long history, including a 2019 U.S. Supreme Court decision—was denied certiorari 30 minutes ahead of today’s one-line opinion. Details on the Court’s cert denial in Piersing v. Domino’s Pizza Franchising LLC, No. 20-695, are available on CPR Speakshere.
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The author edits Alternatives for the CPR Institute.
The U.S. Supreme Court this morning declined to hear a case that presented a persistent arbitration issue: whether the incorporation of a set of arbitration rules that state that an arbitrator decides whether a case goes to arbitration, instead of a court making the arbitrability decision, provides sufficient “clear and unmistakable evidence” that the parties agreed for the tribunal to make the decision.
It was the second time in eight months that the Court has rejected a significant case on the issue.
Piersing v. Domino’s Pizza Franchising LLC, No. 20-695, would have analyzed the clear-and-unmistakable evidence standard for delegation to arbitrability from the Court’s First Options of Chicago Inc. v. Kaplan, 514 U.S. 938, 944 (1995) (available at https://bit.ly/39fAwcR).
The question presented by the petitioner, a former employee of two Domino’s franchisers who had a claim against the parent company, was:
In the context of a form employment agreement, is providing that a particular set of rules will govern arbitration proceedings, without more, “clear and unmistakable evidence” of the parties’ intent to have the arbitrator decide questions of arbitrability?
Last June, the Court declined to hear the question on arbitrability in a cross-petition in Henry Schein Inc. v. Archer & White Sales Inc., No. 19-1080 (June 15, 2020), while accepting the case on the original cert petition on another, close issue involving the reach of carve-out provisions in arbitration agreements.
In its December arguments in Schein, which awaits decision, the discussion of incorporation by reference on arbitrability arose. See “Schein II: Argument in Review,” CPR Speaks (Dec. 9) (available at http://bit.ly/2VXfyIa). In its brief in Piersing, the petitioner “acknowledges that [the] Court recently denied certiorari of a cross-petition presenting a similar question,” citing Schein, adding, “however, the question is presented in this case cleanly and as a stand-alone question.”
In Piersing, the petitioner worked as a delivery driver for a franchisee of respondent Domino’s, and later got an employment offer from Carpe Diem, another Washington state Domino’s franchisee. While the petitioner intended to increase his hours and earnings, the first franchisee fired him based on a no-poach clause in his employment agreement.
He eventually brought a U.S. District Court class-action suit against Domino’s alleging that the hiring rules violated, among other things, antitrust laws.
Domino’s sought to compel arbitration of Piersing’s claims based on the arbitration agreement between the employee and Carpe Diem. Domino’s asked for arbitration, according to the Sixth Circuit opinion in the case that was the subject of the cert petition (see Blanton v. Domino’s Pizza Franchising LLC, 962 F.3d 842 (6th Cir. 2020) (available at http://bit.ly/3sWDlrg)), “because the agreement’s reference to the AAA rules constituted a delegation clause in that the AAA rules supposedly provide for delegation.”
The district court held that equitable estoppel applies to permit franchiser Domino’s to enforce franchisee Carpe Diem’s agreement against Piersing and, according to the petitioner’s cert petition brief, “that the clause providing the AAA rules would govern any arbitration amounted to ‘clear and unmistakable’ evidence of Piersing’s and Carpe Diem’s intent to delegate questions of arbitrability to the arbitrator.”
Piersing appealed the district court’s decision. Relying on Rent-a-Center, West Inc. v. Jackson, 561 U.S. 63 (2010), and more, the Sixth Circuit held that the incorporation of arbitration rules that permit the arbitrator to resolve questions of arbitrability is sufficient to delegate those questions to the arbitrator.
Piersing’s Supreme Court cert petition brief analyzed the holdings in First Options,Rent-a-Center, West, and the first Henry Schein decision, Henry Schein Inc. v. Archer & White Sales Inc., 139 S. Ct. 524 (2019), which wrestled with the question of and the standard for who decides arbitrability, the tribunal or the court.
Based on these precedents, the petitioner argued that the existing circuit court analysis allowing for incorporation of rules that included arbitrators determining arbitrability wasn’t “clear and unmistakable evidence” of the parties’ intent to arbitrate. It emphasized that, particularly for consumers and employees, the cases weren’t sufficiently thorough in light of the First Options standard. The petitioner also noted that the Sixth Circuit’s decision conflicts with the holdings of several state high courts.
Domino’s countered that an agreement incorporating privately promulgated arbitral rules that assign questions of arbitrability to the arbitrator clearly and unmistakably show the parties’ agreement that an arbitrator, not the court, will resolve whether the case is suitable for arbitration.
Domino’s successfully argued for the nation’s top Court to reject the petition and thereby uphold the Sixth Circuit.
An amicus brief in support of the petitioner was filed by Columbia University Law School Prof. George Bermann, who described the issue in the appeal as “a central but unsettled issue of domestic and international arbitration.” Echoing the petitioner, the brief noted the importance of the issue in both Henry Schein Supreme Court cases, but stated that “the delegation question is presented front and center for review in this case.” It also cited the divergence between state and federal court views.
The amicus brief discussed the principle of “competence-competence” in international commercial law—the international equivalent of the arbitrability question under which the tribunal is presumed to be in a position to determine its jurisdiction, and which the Sixth Circuit invoked. Bermann’s brief discussed the concept under the “clear and unmistakable” agreement standard of parties to arbitrate.
The amicus noted that the competence-competence language does not constitute “clear and unmistakable” evidence. “[A]ll modern arbitral procedure rules contain a ‘competence-competence’ clause,” the brief argued, “so that treating such language as clear and unmistakable evidence of a delegation means that parties will almost invariably lose their right to a judicial determination of what this Court has multiple times referred to as the very cornerstone of arbitration, viz. consent to arbitrate.”
Noting the state-federal divide in the interpretation of whether the incorporation of rules satisfies First Options, the brief concluded, “Only this Court can definitively resolve that issue and ensure that parties do not forfeit their right to a judicial determination of arbitrability unless they manifest that intention clearly and unmistakably.”
For more information on the case and an in-depth discussion of the issues involved, see the Supreme Court’s docket page at http://bit.ly/39Zxed1.
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Akande, who received a Master of Laws in Alternative Dispute Resolution last May at the University of Southern California Gould School of Law in Los Angeles, is volunteering with the CPR Institute through Spring 2021. Bleemer edits Alternatives for the CPR Institute.
In line with the decision of the Court of Justice of the European Union (referred to here as the “CJEU”) in Achmea (formerly Eureko) v. Slovakia (the Achmea Decision) and the political declaration issued by the governments of the European Union member states on Jan. 15, 2019, most of the EU member states, with the exception of Austria, Finland, Sweden and Ireland, have entered into a plurilateral treaty for the termination of bilateral investment treaties between the EU Member States (referred to in this article as “intra-EU BITs” and the Termination Treaty).
The Termination Treaty was signed on May 5, 2020, and entered into force on Aug. 29, 2020. See Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT] (available at http://bit.ly/3iqsTn3).
Portugal, the Netherlands, and Luxembourg have made the following formal declarations concerning the Termination Treaty:
“Luxembourg calls upon the European Commission and all member states to start, without any delay, a process with the aim to ensure complete, strong and effective protection of investments within the EU and adequate instruments in this regard.” It requests the European Commission to create a plan for such a process. Declaration of Luxembourg to the Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT].
Portugal appears to endorse a view similar to that of Luxembourg and emphasizes its “support to the intensifying of the discussions between the European Commission and Member States with the aim of better ensuring a sound and effective protection of investments within the European Union. To this end, calls to assess the establishment of new or better tools under European Union law and to carry out an assessment of the current dispute settlement mechanisms which are essential to ensure legal certainty and the protection of interests of investors.” Declaration of Portugal to the Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT].
The Dutch government confirms that although the Achmea Decision does not affect the Caribbean parts of the Netherlands (as Overseas Countries and Territories), BITs concluded with those territories shall also be terminated pursuant to the Termination Treaty. In this sense and irrespective of the Achmea Decision, the effects of the Termination Treaty will extend to all parts of the Kingdom of the Netherlands. Declaration of the Netherlands to the Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT].
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So what will be the fate of intra-EU BITs and intra-EU investment arbitration?
The conclusion of the Termination Treaty is a direct consequence of the Achmea Decision, in which the CJEU declared that Investor-State Dispute Settlement (the “ISDS”) clauses in intra-EU BITs are not compatible with the EU law. (The decision is available at http://bit.ly/2Kf8OmM.)
In general, the Termination Treaty is based on the premise that all intra-EU BITs shall be terminated and their sunset clauses, providing for the temporarily continued protection of investments existing prior to the termination of the relevant BIT, shall be terminated together with the respective intra-EU BIT and thereby shall not produce legal effects.
Furthermore, it stipulates that new intra-EU investor-state arbitrations may not be initiated and that pending proceedings shall be subject to the management procedure described below.
Interestingly, the Termination Treaty does not resolve the issue of application and compatibility with the EU law of the Energy Charter Treaty (the “ECT”) in the intra-EU investment protection context. In particular, the Termination Treaty stipulates that it does not cover intra-EU arbitrations initiated based on ECT Article 26 and that this issue will be dealt with at a later stage. Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT] at 2. The ECT is available at http://bit.ly/3nUL2u7.
Considering that in recent years we have witnessed rise of the number of intra-EU ECT arbitrations, the uncertainty introduced by the Termination Treaty may put the parties engaged in pending arbitrations, or anticipating initiation of new proceedings pursuant to ECT Article 26, in an adverse position. See,. e.g., Landesbank Baden-Württemberg and others v. Kingdom of Spain, ICSID Case No. ARB/15/45, Decision on the Intra-EU Jurisdictional Objection [25 February 2019]; Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue [31 August 2018]; Masdar Solar & Wind Cooperatief U.A. v Kingdom of Spain, ICSID Case No. ARB/14/1, Award [16 May 2018]; Statistics of ECT Cases (as of Oct. 23, 2019) (available at https://bit.ly/3oGCeJz).
Notably, as argued by the Advocate General Henrik Saugmandsgaard Øe in his recently issued opinion in joined cases C‑798/18 and C‑799/18, the ECT ISDS clause does not apply in the intra-EU context, and the ECT may be entirely inapplicable to intra-EU proceedings. This indicates that if the CJEU follows the Advocate General’s reasoning, EU investors may be deprived of procedural and substantive protection under the ECT in the intra-EU relations. Joined Cases C 798/18 and C 799/18, Opinion of Advocate General Saugmandsgaard Øe [29 October 2020] (available at http://bit.ly/3bEYEHk).
Management of the pending intra-EU proceedings
Pending proceedings, defined as intra-EU investment arbitration proceedings initiated prior to March 6, 2018—the Achmea Decision linked above–and which have not ended with a settlement agreement or with a final award issued prior to March 6, 2018, where the award was duly executed prior to March 6, 2018, or the award was set aside or annulled before August 29, 2020, shall in principle be subject to the so-called Structured Dialogue, which is a mechanism that aims to assist disputing parties in finding an amicable settlement of a dispute. Art. 1(4) and (5) and Art. 9 Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT].
The settlement procedure is overseen by an impartial facilitator who shall find an amicable, lawful, and fair out-of-court and out-of-arbitration settlement of the dispute. Settlement of the dispute shall in principle be reached within six months. Art. 9 (1) – (14) Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT]. It can be observed that the mechanism resembles investor-state mediation.
Going a step further, the Termination Treaty implements an option for investors engaged in pending arbitrations to seek judicial remedies under national law before domestic courts against the host state measure contested in such arbitration proceedings. This option is available to investors under the condition that they withdraw pending arbitration proceedings and waive rights and claims under the relevant intra-EU BIT, or renounce execution of the issued award and commit to refrain from instituting any new arbitration proceedings. Art. 10 Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT]. In such case, limitation periods would not apply to bringing legal action before domestic courts.
This may have a severe impact on the prospect of lodging a successful claim against a state by the investor, since the legal framework of intra-EU BITs that provided a substantive and procedural legal basis in a pending arbitration will not be applicable in domestic court proceedings.
Doubtful recognition andenforcement of awards
Decisions and/or awards issued in pending, or, as the case may be, new arbitration proceedings may not be effective, because the Termination Treaty stipulates that contracting states shall, in case of domestic court proceedings, request the domestic court, including in any third country, to set the arbitral award aside, annul it, or to refrain from recognizing and enforcing it. Art. 7 (b) Agreement for the termination of Bilateral Investment Treaties between the Member States of the European Union [SN/4656/2019/INIT].
This raises a threat to the effectiveness of guarantees provided under, among others, the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (the “ICSID Convention”).
It can be recalled that ICSID Convention Article 54 stipulates that each contracting state shall recognize an award rendered by an ICSID Tribunal as binding and enforce the pecuniary obligations imposed by that award as if it were a final judgment of a court where recognition is sought. This unique recognition mechanism does not leave room for any ground on which the recognition could be refused.
Considering a rather likely scenario in which a domestic court of an EU member state is faced with a request for recognition of award or decision issued by a tribunal in an intra-EU investment arbitration case, it can be noted that such domestic court will need to resolve uncertain and complex situation concerning the conflict of treaty norms. The domestic court will need to decide whether to recognize the award, or issue a decision in accordance with the ICSID Convention, or to comply with the EU law and refuse recognition and thereby, to undermine the ICSID Convention.
Although not addressed in the Termination Treaty, it appears that the CJEU argument in the Achmea Decision regarding incompatibility of the ISDS clauses in intra-EU BITs with the EU law may potentially extend to extra-EU BITs and arbitrations between EU members states and investors from third states.
Clearly, arbitrations initiated on a basis of ISDS clauses contained in such BITs may concern treatment of investors from third states investing in the EU, and therefore the subject matter of such arbitrations may relate to interpretation and application of the EU law.
Such arbitrations may also pose a risk to the proper interpretation and application of the EU law and have an adverse effect on the autonomy of the EU law. See Case C 284/16 Slowakische Republik (Slovak Republic) v. Achmea BV [2018]. Such reasoning, if followed, which is rather unlikely, would further deepen the crisis concerning European Union investment treaty arbitration.
It might be further noted that the competence of the court where the arbitration is seated to set aside the arbitration award may lead to the situation where such court would be a non-EU court and would not be bound by the Termination Treaty.
Furthermore, the winning investor may seek to have the arbitration award recognized and enforced in a non-EU jurisdiction where the defendant’s assets are located.
Taming the lion: The tendency of arbitral tribunals to reject intra-EU jurisdictional objections
Despite the Achmea Decision and clear commitment of EU member states on terminating the intra-EU BITs, arbitral tribunals in intra-EU arbitrations generally reject jurisdictional objections asserting incompatibility of intra-EU BITs.vSee, e.g., Strabag SE, Raiffeisen Centrobank AG and Syrena Immobilien Holding AG v. Republic of Poland, ICSID Case No. ADHOC/15/1, Partial Award on Jurisdiction [4 March 2020]; Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No. ARB/12/12, Decision on the Achmea issue [31 August 2018]; Masdar Solar & Wind Cooperatief U.A. v Kingdom of Spain, ICSID Case No. ARB/14/1, Award [16 May 2018]; UP (formerly Le Chèque Déjeuner) and C.D Holding Internationale v. Hungary, ICSID Case No. ARB/13/35, Award [9 October 2018]; Addiko Bank AG and Addiko Bank d.d. v. Republic of Croatia, ICSID Case No. ARB/17/37, Decision on Croatia’s Jurisdictional Objection Related to the Alleged Incompatibility of the BIT with the EU Acquis [12 June 2020].
As emphasized by the tribunal in the partial award on jurisdiction in Strabag SE, Raiffeisen Centrobank AG and Syrena Immobilien Holding AG v. Republic of Poland, EU law does not form part of the law applicable to questions of the tribunal’s jurisdiction, and no extrinsic elements of interpretation under Article 31(3) of the Vienna Convention on the Law of Treaties can trump the clear expression of the parties’ common intention to arbitrate. Strabag SE, Raiffeisen Centrobank AG and Syrena Immobilien Holding AG v. Republic of Poland, at par. 8.143. It should be noted, however, that the intention of capital importing states to arbitrate disputes may be considered as no longer existent due to the signing and entry into force of the Termination Treaty.
Notably, the tribunal further considered the issue of the enforceability of an award issued in intra-EU arbitration and recognized its duty to render an enforceable award. It noted, however, that it is not able to predict the future validity, or enforceability of the award before enforcing courts. Id. at par. 8.140-8.142.
More recently, the tribunal in Addiko Bank v. Croatia raised several interesting points when rejecting Croatia’s jurisdictional objection related to the incompatibility of the Austria-Croatia BIT with the EU acquis.
The tribunal reasoned that in light of Article 2(1)(a) of the Vienna Convention on the Law of Treaties, the law applicable to the Austria-Croatia BIT consists of the terms of that BIT itself and general principles of international law, which are the sources of law not considered by the CJEU as incompatible with the EU law.
Furthermore, the tribunal noted that contrary to the BIT concluded between the Netherlands and Slovakia, considered by the CJEU in the Achmea Decision as incompatible with the EU law, the Austria-Croatia BIT does not incorporate EU law as part of its applicable law. Addiko Bank AG and Addiko Bank d.d. v. Republic of Croatia, ICSID Case No. ARB/17/37, Decision on Croatia’s Jurisdictional Objection Related to the Alleged Incompatibility of the BIT with the EU Acquis [12 June 2020] par.267. The tribunal concluded that the Austria-Croatia BIT does not give rise to the same functional concerns, which the CJEU found to be present in the context of the Achmea Decision. Id. at par.269.
This indicates that intra-EU BITs whose applicable law is limited to the terms of the intra-EU BIT itself and general principles of international law are not incompatible with the EU law. Following this reasoning, it can be assumed that the tribunal would reach a different conclusion if the Austria-Croatia BIT included a provision expressly or impliedly incorporating EU law as the applicable law.
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Some of the solutions implemented under the Termination Treaty may indeed be considered controversial. This is particularly the case with respect to the mode of termination of legal effects of sunset clauses, or more broadly, the retroactive effect of the Termination Treaty.
Investors may decide to seek protection under existing BITs concluded with non-EU states and, thereby, engage in the treaty shopping practice. It remains an open question whether such BITs will be affected by the Achmea Decision.
While the Achmea Decision argument has become a popular strategy for defendants in investment arbitration proceedings to challenge jurisdiction of arbitral tribunals, jurisprudence indicates that such arguments are generally rejected.
Although developments contained in mega-regional treaties, such as the Comprehensive Economic and Trade Agreement (available at http://bit.ly/2LXjQh3), may provide a model for the creation of standing investment court, which could replace the ISDS mechanism so far in place, the institutional design of the body must comply with the EU law in order to provide an effective alternative to domestic courts. In this regard, it is important to monitor development of the EU’s initiative concerning the so-called Investment Court System, which could be further developed into a Multilateral Investment Court.
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Krzysztof Wierzbowski is a Senior Partner at Eversheds Sutherland Wierzbowski in Warsaw, Poland. He is a member of the CPR European Advisory Board, which provides EAB posts for CPR Speaks.Aleksander Szostak LL.M. is a lawyer at Eversheds Sutherland Wierzbowski.
New York Law School’s Alternative Dispute Resolution Skills Program kicked off its first 2021 round of biweekly Wednesday lunch conversations yesterday featuring mediator Lela Porter Love, a law professor and director of the Kukin Program for Conflict Resolution at New York’s Benjamin N. Cardozo School of Law.
Love opened by emphatically noting that dialogue is currently dying or impoverished, even on the political scene. Mediation, she said, “is the last bastion,” with mediators trained to promote dialogue. But even in mediation, there is “less and less mandate for mediators to bring parties together into joint sessions.”
Her discussion was mostly based on a 2019 survey of practicing mediators in a professional group, the International Academy of Mediators, to determine the use of joint and caucus sessions. Presenting a PowerPoint, “The Disappearing Joint Session,” based on 129 responses and anecdotal discussions, Love said that the data reflects the title: There is a lessening frequency of the use of joint sessions and more reliance on mediators conducting caucuses with individual parties.
Prof. Love moved to a 2017 survey by the American Bar Association Dispute Resolution Section Task Force on the Relation of Mediator Actions to Mediation Outcomes also on the use of caucus during mediation. The results, she said, were counterintuitive: caucusing had an increased settlement effect in labor-management disputes, but no effect, according to her presentation slide, “in other types of disputes regardless of [the] purpose of caucus (i.e., whether to establish trust or discuss settlement proposals).”
She said that the use of caucus has shown that parties are more likely to file an enforcement action based on their settlement—which indicates that increased caucusing didn’t reduce acrimony. As a result, caucus sessions, while they may increase labor-management case settlement, may have potential for negative effects on the parties’ perceptions and relationships.
Love discussed the caucusing results in a broad Maryland state judiciary ADR evaluation report. Based on the evaluation of caucus sessions, the greater the percentage of time participants spent in caucus, the less likely the parties were satisfied with the outcome, and the less likely the participants report that the issues “were resolved with a fair and implementable outcome.”
“On balance,” said Love, “you don’t see this real, ‘Wow, now I understand why there is this great move to caucusing.’”
The Maryland study showed that when the mediators controlled the sessions, limiting the issues instead of presenting a broad range, parties showed an increase in a desire to better understand the other party. The long-term aftereffects results show that the greater percentage of time participants spent in caucus, the more likely participants will return to court for an enforcement action after mediation, reflecting a lack of durability of those mediation results.
Love further discussed the values that influence mediation style and reasons why mediators use caucus sessions instead of joint sessions, returning to the IAM study. First, mediators who do not use joint sessions primarily do not do so because attorneys do not want joint sessions.
The second reason they lean toward caucus and away from joint sessions is that parties tend to decline joint sessions because they feel more comfortable participating in the mediation process by sharing their stories in caucus sessions with the mediator, rather than facing their adversary. “People in conflict are really angry at each other and they don’t want to see each other,” explained Love.
Love further noted that mediators were mostly trained to use joint sessions, though different schools of mediation also favored caucuses. A more important factor in constructing and conducting mediation sessions is that a significant purpose is to get people together to heal relationships—as opposed to the “war” of adjudication–which orients toward using joint sessions.
Prof. Love concluded by stressing that listening helps settle cases, and it is important in helping people tell their stories. The mediators who seek to identify the parties’ interests perhaps are doing only one aspect of the process, noted NYLS ADR Skills Program Director and moderator F. Peter Phillips, who added that mediation might be better handled if the emphasis was on all parties listening and working to understand one another. Love concurred, and, noting that mediators are witnesses to the participants’ stories, suggested that neutrals provide “respectful-person listening” that enhances the process.
Love’s Jan. 13 NYLS Conversations in Conflict Resolution session is available on YouTube at https://bit.ly/3nOluyK.
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The author, who received a Master of Laws in Alternative Dispute Resolution last May at the University of Southern California Gould School of Law in Los Angeles, is volunteering with the CPR Institute through Spring 2021.
The International Institute for Conflict Prevention and Resolution has filed an amicus brief requesting that the U.S. Supreme Court grant certiorari to resolve a federal circuit court split on whether 28 U.S.C. § 1782 allows federal district courts to order discovery for private commercial arbitration abroad.
CPR did not take a position on the merits of the case.
Yesterday’s filing in Servotronics Inc. v. Rolls-Royce PLC, et al., No. 20-794, highlights the circuit split underlying the case. Petitioner Servotronics presents the question,
Whether the discretion granted to district courts in 28 U.S.C. § 1782(a) to render assistance in gathering evidence for use in “a foreign or international tribunal” encompasses private commercial arbitral tribunals, as the U.S. Courts of Appeals for the 4th and 6th Circuits have held, or excludes such tribunals without expressing an exclusionary intent, as the U.S. Courts of Appeals for the 2nd, 5th and, in the case below, the 7th Circuit, have held.
CPR urged the Court to resolve this circuit court split, noting in the brief that “the question of whether United States district courts may entertain applications for judicial assistance in obtaining evidence for presentation in arbitral proceedings before international tribunals is one of great relevance to CPR and its constituents.”
The friend-of-the-Court brief states that the “current existence of opposite rules on whether district courts have jurisdiction to render assistance under Section 1782 in gathering evidence for international arbitral tribunals creates both the opportunity for blatant forum shopping and the likelihood of protracted litigation on the threshold jurisdictional question in each of the seven remaining regional circuits that have not decided the question.”
CPR also argues that the court should set the case for argument this term to avoid the likelihood that it will become moot prior to decision.
Section 1782 authorizes “any interested person” in a proceeding before a “foreign or international tribunal” to ask for and receive discovery from a person in the United States. But the conflicting federal circuit cases differ on whether the statute’s definition of tribunals would cover arbitration matters. The Servotronics parties have decisions going both ways, one in the Fourth Circuit, and the second, the subject of the cert petition, in the Seventh Circuit.
CPR Speaks has addressed the issues in this case as they arose. John Pinney, counsel to Graydon in Cincinnati who prepared the amicus filing on CPR’s behalf, discusses the case in a video post here. Updates on the circuit split as it developed in 2020’s second half are available here and here.
You can find the CPR amicus filing, as well as other filings in the case, on the Supreme Docket page, here. Law360 covered the filing here, available with a subscription.
Alternatives to the High Cost of Litigation Editor Russ Bleemer hosts analysis by Prof. Angela Downes, University of North Texas-Dallas College of Law, and arbitrator-advocate-amicus brief contributors Richard Faulkner, also of Dallas, and Philip J. Loree Jr. in New York.
Court’s Rejected Cert Request Is Argued Anyway
By Russ Bleemer
Was the U.S. Supreme Court having second thoughts about how it has approached Tuesday’s arbitration case?
Back for its second round of arguments at the Court after a decision just last year, Henry Schein Inc. v. Archer and White Sales Inc., No. 19-963, returned to explore the issue, “Whether a provision in an arbitration agreement that exempts certain claims from arbitration negates an otherwise clear and unmistakable delegation of questions of arbitrability to an arbitrator.”
Schein’s attorney, Kannon K. Shanmugam, a partner in the Washington, D.C., office of Paul Weiss, Rifkind, Wharton & Garrison, argued that the Fifth U.S. Circuit Court of Appeals, in deciding not to compel arbitration in the case, misapplied the historical presumption of arbitrability.
He also emphasized that “clear and unmistakable” evidence that the parties delegated the matter to arbitration puts the initial question of arbitrability to an arbitrator, even with the carveout for injunctions.
The appeals court had said that clear and unmistakable evidence that the parties wanted to arbitrate existed, but not to arbitrate the injunctive relief—a drafting issue that justified sending the case to the courts.
In his counterargument, respondent attorney Daniel L. Geyser, of Dallas’s Alexander Dubose & Jefferson, countered with, among other things, a focus on the delegation to arbitration by the parties.
That focus produced an usual argument. It wasn’t because many of the justices also focused on the particulars of the clause delegating the matter to arbitration. In fact, Geyser and Archer and White had cross-petitioned the Court to take on the issue of the delegation clause’s incorporation by reference of arbitration rules.
The Court granted certiorari on June 15 on Shanmugam and Henry Schein’s issue on the sweep of the injunction carveout. But the Court rejected the cross petition on delegation and incorporation of rules.
Yet at times, the rejected clause delegation issue was the argument’s primary focus.
“I want you to assume that we are not going to decide the question that you wanted us to decide in the cross-petition,” said Justice Samuel A. Alito Jr. during Geyser’s argument. “And if we make that assumption, I really don’t know how to answer the question that we granted review on because it does seem to turn on the degree of the delegation to the arbitrator of the power to decide whether the arbitrator can decide.”
Alito wasn’t the only one.
Archer and White had persisted with the question in its brief in the case even after the cert denial. More significantly, the failed cross-petition or the delegation clause itself was raised directly or in passing by nearly every one of the nine justices, who argued the case in an online broadcast, as has become the custom in the pandemic since May.
The cert grant, and simultaneous cert denial, made sense on paper. The Fifth Circuit had said the delegation was valid, putting the focus on the appellate court’s interpretation that the carveout for injunctions preceded the arbitrator’s work and had to be decided by a court.
But even Shanmugam’s argument on behalf of the petitioner anticipated the presence of his adversaries’ rejected issue. Before facing a single question, Shanmugam took on the cert denial himself, noting that 12 circuit courts agree that a delegation clause incorporating rules is sufficient.
The contract in the matter incorporated American Arbitration Association rules that give arbitrability decisions to the arbitrator.
Shanmugam opened his argument on behalf of petitioners Henry Schein stating that the Fifth Circuit review hierarchy was wrong for two reasons. “First, a delegation is simply an antecedent agreement that is subject to the rules governing arbitration agreements more generally,” he said, continuing, “Second, any doubts concerning the scope of arbitration agreements are resolved in favor of arbitration.”
If that arbitration presumption had been applied correctly, he argued, a carveout that doesn’t speak specifically to the delegation to an arbitrator cannot interfere with the overall delegation of a case to an arbitrator. “The Court should stick to the question it agreed to decide,” advised Shanmugam on behalf of Henry Schein, “and it should decide that question in petitioner’s favor.”
The argument highlights below are based on the audio feed of the case, available on the Supreme Court’s webpage at https://bit.ly/3m2RCxz, and the transcript, also on the Court’s site at https://bit.ly/3a6xDMv. For background on the case, including links to key documents and the 2019 Supreme Court decision in the same matter, see “Supreme Court Argument Preview: Looking Ahead to Round 2 on Schein and Arbitrability,” CPR Speaks blog (Dec. 3) (available at https://bit.ly/2VyD1z6) (The CPR Speaks link also contains information on the participants in the accompanying YouTube video discussion, conducted on Tuesday, Dec. 8.).
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The Supreme Court generally seemed to agree with Kannon Shanmugam’s opening words, but still returned to the delegation and rules’ incorporation questions almost as much as the Fifth Circuit’s denial of arbitration.
“They don’t want arbitrators deciding this,” said Chief Justice John G. Roberts Jr. in opening the questioning, referring to the presence of the contract clause carveout sending injunctions to court, adding, “Why would they want arbitrators to decide who gets to decide it?”
Shanmugam said that the Fifth Circuit divided the responsibility of who decides between the court and the arbitrator, while the contract was a clear delegation of the case to arbitration. The result of the appeals court opinion was negating that arbitration intention because of the carveout sending the case to court instead.
He returned repeatedly to a need to assert the presumption of arbitrability in viewing the parties’ arbitration clause and the context for the carveout.
The contract clause states, “Any dispute arising under or related to this Agreement (except for actions seeking injunctive relief and disputes related to trademarks, trade secrets, or other intellectual property . . .), shall be resolved by binding arbitration in accordance with the arbitration rules of the American Arbitration Association [the “AAA”].”
Justice Clarence Thomas focused on the delegation clause, asking Shanmugam to walk the Court through its use in the case. “I don’t see the word ‘delegation’ at all or a verb ‘delegate’ at all,” said Thomas.
Shanmugam replied that the Supreme Court “has never required magic words on the face of the agreement. Instead, all that the Court has said is that you have to have clear and unmistakable evidence. And under ordinary objective principles of contract formation, the incorporation of a document [referring to the arbitration agreement’s AAA rules referral] suffices in order to render that document part of the contract.”
Borrowing from labor law and referencing key Supreme Court precedents, Justice Stephen G. Breyer said that the presumption of arbitration still requires a deciding court to judge the scope of that arbitration. Shanmugam said that the delegation is “a kind of miniature contract formation,” that contemplates whether there was “a meeting of the minds that the arbitrator should decide questions concerning the scope of the arbitration agreement.”
The incorporation of the AAA rules, he said, was sufficient under ordinary contract formation principles.
Justice Samuel A. Alito Jr. asked Henry Schein’s attorney about the basis for the presumption for arbitration. Shanmugam replied it rested in the Federal Arbitration Act’s Section 2, as well as “flowing from the policy underlying the arbitration act as a whole.” He added, “if I were pressed, I would say it’s probably ultimately a matter of federal common law” as well as emanating from statute.
Justice Sonia Sotomayor returned immediately to the cross-petition on the delegation agreement’s incorporation of rules by reference, and said that the Henry Schein brief conceded that the Court could reach the issue to decide the case. She questioned whether the delegation to arbitration was clear for the injunction and all other issues.
Echoing the Fifth Circuit, Sotomayor agreed there was a clear delegation, but suggested she found ambiguity on the injunction’s decision maker. Shanmugam said that the appeals court incorrectly considered the presumption for arbitrability. Even with an unclear scope of arbitration, he explained, the Fifth Circuit should have applied a presumption that the case was to be arbitrated once it found that valid delegation.
Justice Elena Kagan was focused on the injunction carveout, posing a hypothetical change in the contract wording, and concluding, “if you have something which at least arguably seeks injunctive relief, the court should deal with the question of whether it does and then should go on to decide the issue.”
Justice Neil Gorsuch pressed Shanmugam on the point discussed with Alito on a statutory basis for the presumption for arbitration. The Henry Schein attorney stuck to FAA Section 2.
Justice Brett Kavanaugh retraced Shanmugam’s argument points with the attorney, and asked about “real world” contracting situations–“how people draft these contracts, what they expect, my understanding was that the question of who decides arbitrability, the who-decides question, is almost never divided between a court and an arbitrator because that would be almost nonsensical in the real world because you need one person to decide, and it’s either going to be the court or the arbitrator, not both the court and the arbitrator.”
Though the question initially ignored the existence of the injunction carveout, Shanmugam quickly agreed. “That’s correct. And I’m aware of no examples of such a division.” Kavanaugh responded, “Right. Nor am I.”
Then, Kavanaugh tackled the contract carveout in the case sending the injunction to the court, noting that every contract has them. “And so, if that alone means the Court decides what is arbitrable, then the Court will always decide arbitrability and really eradicate the idea that arbitrators can ever decide arbitrability,” he said.
Justice Amy Coney Barrett also restated Shanmugam’s argument, acknowledging the cross-petition issue’s denial and accepting the delegation to the AAA rules as sending arbitrability to the arbitrator. But echoing Shanmugam, she indicated that it would be nonsensical “to carve up arbitrability questions.” She continued, “If that’s true, why isn’t that reason to interpret this clause as not being a clear and unmistakable delegation of all questions of arbitrability?”
“As a matter of contract formation,” concluded Shanmugam, focusing on the presumption of arbitration, “there is an agreement to arbitrate arbitrability. At that point, Justice Barrett, everything else that we’re talking about is a question of interpretation. It’s a question of the scope of the delegation.”
Shanmugam summarized his argument for the Court, once again directing his attack on the delegation argument incorporating the AAA rules. He noted that the “[r]espondent is really asking the Court to decide this case based on a different question, the incorporation question. And that would be a bold strategy in any case, but I would submit it’s a particularly bold strategy here because Respondent asked the Court to decide that question at the cert stage, and the Court seemingly consciously made the decision not to add it.”
He again asked the Court to avoid the issue it already declined to hear, noting, “All that the Court need do in this case is to hold that the court of appeals’ actual reasoning is inconsistent with this Court’s decisions applying familiar Federal Arbitration Act principles.”
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Respondent attorney Daniel Geyser immediately attacked the delegation and incorporation points on behalf of his client Archer and White in his opening statement. “It is simply not plausible that anyone would recognize this issue and choose to resolve it by relying on an oblique reference to the AAA rules rather than a simple, explicit sentence delegating the gateway issue,” he told the justices in his opening statement.
He added that the injunction falls within the carveout from arbitration, and therefore isn’t subject to arbitration under the American Arbitration Association rules. “It makes no difference what those rules say because the condition for activating them is unmet,” he said.
Using a hypothetical and invoking Justice Kavanaugh’s discussion, Chief Justice Roberts began questioning Daniel Geyser by asking why the carveout’s arbitrability should be treated differently than arbitrability issues in an arbitration contract with no express carveout.
“[N]ormally,” replied Geyser, “when parties include an express delegation provision, it’s unconditional and it’s categorical. It’s not like what you have here.”
Roberts asked Geyser to leave the AAA rules’ delegation out of his answer. “I think that’s what we tried to do when we denied cert on that question,” said the chief justice.
Geyser countered that the default is that the court decides the arbitrability issue. He said, “The only time an arbitrator decides whether a dispute falls within the scope of the agreement is if there is, in fact, a delegation provision.”
Geyser suggested the problem was drafting: “We absolutely concede that if the exception is limited solely to the scope of arbitration and there is a separate unconditional delegation provision, that the arbitrator gets to make that determination. “
He continued on the theme, telling Justice Thomas that phrasing matters, and the Court should focus on the delegation and the wording of exceptions. He said Archer and White would lose if there was a second sentence that said that arbitrator shall decide arbitrability—“an express unconditional delegation of the issue of arbitrability to the arbitrator.”
Geyser continued: “[U]nless there’s clear and unmistakable evidence that the parties wanted the arbitrator to decide arbitrability, then the default is with the court, and the court has to first identify a delegation agreement and identify any limits to that delegation agreement. “
Thomas was skeptical. He noted that Geyser’s construction limits an arbitrator’s authority on arbitrability after it had been granted by the contract. “I don’t know how you can have it both ways,” said Thomas, “You [can’t] say he has the authority, and in these limited circumstances, he doesn’t.”
Geyser countered that the Court has “never” issued a “binary rule.” He said, “Parties are perfectly free under the Federal Arbitration Act to delegate some issues to arbitration and to delegate some arbitrability issues to arbitration.”
Facing Justice Alito’s concerns about the posture of the case, Geyser said the Court, in the face of the question of whether there was a clear and unmistakable delegation to arbitration of arbitrability, “could dismiss the case as improvidently granted,” or request additional briefing, though he quickly added that he thought the case was fully briefed.
But he also explained to Alito that he believed even in the face of a clear delegation, a plain-text reading of the agreement shows that the carveout for injunctions removes the case from the arbitrator. “[It’s] the most straightforward way to affirm in this case,” he said.
Justice Sotomayor said that Geyser’s argument falls short because of a clear delegation to the AAA rule for arbitrability matters. Geyser countered that the delegation was limited by the injunction carveout.
In response to Justice Kagan’s questioning, Dan Geyser said that court decision for the gateway-to-arbitration issues is “traditionally what parties expect.” He continued, “It provides a critical judicial safeguard and it avoids the situation where the arbitrator is deciding the scope of his or her own jurisdiction.”
He added that the FAA backed delegating “certain issues but not others to the arbitrator.” He urged the Court to support the requirement that “unless parties clearly and unmistakably override the strong presumption in favor of courts acting as gatekeepers, that Congress imagined in the Federal Arbitration Act, in Sections 3 and 4, that, in fact, the courts keep that gateway role.”
Justice Kavanaugh returned to the purpose of contracting, saying he had a problem with Geyser’s conception that contracting parties divvy up arbitrable matters and court matters. “[T]hat’s just not how it works in the real world, nor could it [realistically] work that way in the real world,” he said.
Kavanaugh asked Geyser if the justice’s interpretation was wrong. “In the real world,” Geyser replied, “parties sometimes do limit a delegation. They might say that the court decides whether class arbitration is appropriate. And parties are perfectly free to do that.”
He told Cavanaugh, “I don’t see any way to read the actual text of this agreement to say that the carveout wouldn’t include a carveout to the AAA rules.”
Geyser conceded to Justice Barrett that his client would lose if the Court does not agree that there was no clear and unmistakable delegation to arbitration and declines “to get into the question that we denied cert on, [and instead] assume[s] that incorporating the AAA rules by reference is enough to constitute a clear and unmistakable delegation. . . .”
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Dan Geyser began his summation on behalf of respondent Archer and White noting, “[W]e apologize for trying to get the Court back into an issue that maybe it doesn’t wish to address.” He warned against “a profoundly atextual construction of the plain text of this agreement,” and said, “I think it would be very difficult to construe this language in a sensible way without getting into the delegation.”
In his rebuttal, Henry Schein attorney Kannon Shanmugam urged the Court to reverse the Fifth Circuit, noting, “[I]t’s one thing to say that parties may want to divide up responsibility for different types of questions of arbitrability such as who is subject to the arbitration agreement or whether a class action waiver is valid, but as I’ve pointed out in my earlier colloquy with Justice Kavanaugh, we are not aware of any actual agreement in the real world that divides up responsibility for a particular question of arbitrability and in particular the paramount question of the scope of the arbitration agreement.”
The U.S. Supreme Court this morning declined to hear an insurance coverage case in which a consumer contract mandated arbitration.
The case, Old Republic Home Protection Co. v. Sparks, No. 20-237, involves a mandatory arbitration requirement in a consumer contract for home services repairs.
It examines a clash between the McCarran–Ferguson Act, 15 U.S.C. 1012(b), a 1945 law that gives insurance regulation to the states; the Federal Arbitration Act, and the Oklahoma Arbitration Act, which states, “The [Oklahoma] Arbitration Act shall not apply to collective bargaining agreements and contracts which reference insurance, except for those contracts between insurance companies.” Okla. Stat. Ann. tit. 12, § 1855(D).
The law, notes the Oklahoma Supreme Court case that was the subject of the home service company’s petition for certiorari, provides a “reverse preemption,” taking Oklahoma insurance contracts out from under the FAA’s auspices.
Oklahoma’s top Court agreed with the plaintiffs, noting that they “argued that the federal McCarran-Ferguson Act authorized the ‘reverse preemption’ of the FAA in this instance. Because the FAA did not preempt relevant Oklahoma state law involving the regulation of insurance, [the plaintiffs] replied that the Court of Civil Appeals did not err in holding that § 1855 of the Oklahoma Uniform Arbitration Act barred the enforcement of arbitration in this matter.” Sparks v. Old Republic Home Protection Co., 467 P.3d 680 (Okla. S.Ct. 2020) (available at https://bit.ly/3omxDvA).
The decision stands, and the case appears headed for a trial court for resolution.
The plaintiffs are a Moore, Okla., married couple, that had filed suit against Old Republic Home Protection Co., of San Ramon, Calif., under a home service contract that they charged provided faulty repairs to their air conditioning system which damaged their home.
The issue officially presented by Old Republic and rejected by the Court today was
“Whether, in a case involving interstate commerce and a written contract with an arbitration provision that expressly requires application of the Federal Arbitration Act, a state arbitration statute that by its terms “shall not apply to . . . contracts which reference insurance” (a) qualifies as a “law enacted by [a] State for the purpose of regulating the business of insurance” under the McCarran–Ferguson Act, and (b) can support reverse preemption of the FAA based on an asserted impairment of such a state law.“
Scotusblog has the papers in the case, including the Oklahoma opinion, at https://bit.ly/39NaXR3.
CPR Speaks 