Florida’s Top Court Takes on ‘Who Decides?’ in Airbnb Arbitration Case

By Arjan Bir Singh Sodhi

Wednesday’s Florida Supreme Court argument presented a foundational issue on the adoption of arbitration proceedings—more on the question of who decides whether a case is arbitrated, based on the incorporation into a consumer contract of a set of arbitration rules.

The Nov. 3 argument, in Airbnb v. Doe, No. SC 20-1167, explores whether contract provisions are “clear and unmistakable”—the case law standard—in allowing the arbitration tribunal to determine its jurisdiction, and in allowing an assessment of the evidence from the contract that the parties agreed to arbitrate arbitrability.

Both federal and Florida cases back Airbnb, the best-known accommodations rental app, in finding that by incorporating a set of contract rules—in the case, the American Arbitration Association Commercial Arbitration Rules—the parties are agreeing to have an arbitration tribunal decide whether a case is to be arbitrated. 

But a Florida appeals court bucked the trend, and in a detailed opinion, found that the click-thru web interface didn’t provide adequate notice to the app users that they were agreeing to arbitration via a link to the rules which stated the arbitrability provision.

In the case, an anonymous Texas couple filed a complaint against Airbnb and the condominium owner who had listed the Florida property on the Airbnb platform. The complaint includes intrusion against the condo owner, and constructive intrusion against Airbnb. The plaintiff rented the condo for three days in 2016 and later learned that the owner had installed hidden cameras and recorded the couple without their knowledge.

The Does filed their complaint in the Manatee County, Fla., circuit court. Airbnb moved to compel to settle the dispute through an arbitration proceeding. Airbnb claimed that the Does are bound to an arbitration proceeding under the signed terms and conditions when they accepted the app’s click-wrap agreement—that is, the legal contract in the Airbnb online software in which the customer indicates acceptance by typing in yes, or selecting a particular icon or link before they may use the service.

The click-wrap agreement included a dispute resolution clause stating that the parties must arbitrate under the rules of the American Arbitration Association, with a link to the rules.  The rules contain the provision that the determination of whether the case is arbitrable goes to the arbitrator, not a court.

The Manatee County Circuit Court granted Airbnb’s motion to compel the arbitration. But Florida’s Second District Court of Appeal reversed. John Doe & Jane Doe v. Natt & Airbnb Inc., 299 So. 3d 599 (Fla. 2d DCA 2020) (available at https://bit.ly/3BPYPcu). The appellate court held that reference does not clearly and unmistakably suppress the court’s power to decide the arbitrability. The decision noted that the click-wrap agreement is not clear enough on the issue of who should decide the jurisdiction of the arbitration proceedings.  It stated that the reference “was broad, nonspecific, and cursory: the clickwrap agreement simply identified the entirety of a body of procedural rules. The agreement did not quote or specify any particular provision or rule.  . . .”

The appeals court also held that AAA Commercial Arbitration Rule 7 on arbitrability is not an exclusive power for the arbitrator.

Oral Argument

At Wednesday’s oral argument, Joel S. Perwin, who heads his eponymous Miami law firm, argued on behalf of petitioner Airbnb that the click-wrap clause covered everything, including the arbitrator’s resolution of deciding the arbitrability.

Justice Carlos G. Muñiz asked Perwin to clarify whether parties who accept the contract are expected to understand caselaw and legal language—whether they should understand that the courts have deemed such agreements referring to rule to be a “clear and unmistakable” indication that arbitrability goes to the tribunal.  

Perwin replied that he does not expect the parties to read the case law. “I would never suggest that,” he said. But he quickly added that the parties “are required to read the [contract] language.” He cited the “overwhelming weight of the authority” to indicate that the incorporation of the rules is accepted and customary.

Perwin addressed the parties’ sophistication, which was an argument that the Does made against the effectiveness of the click-wrap agreement.  He said the Does introduced no evidence that they were not sophisticated, and added that the parties’ sophistication level is not even a relevant factor in the matter.  

He said that in applying an objective test—Is the contract clear and unambiguous?–as to whether the agreement applies doesn’t depend on an analysis of the parties’ sophistication. “This language is clear and unambiguous as a matter of law,” he said.

* * *

Thomas Seider, an attorney in the Tampa, Fla., office of Brannock Humphries & Berman, arguing on behalf of the respondents, the Does, opened by noting that arbitration is a matter of consent. He said the question is whether the respondents gave their consent to the arbitration proceedings.

Justice Ricky Polston strongly suggested that while looking at federal law, the AAA rules, and the incorporation by reference of the rules into the contract, that the rules indeed are a part of the contract.

Justice Polston asked why, in reading AAA Rule 7, it wasn’t clear and unmistakable that that arbitrators have the ability to decide the jurisdiction. Focusing on the contract language, Seider argued that the Does only needed to read the rules if they needed to know, for example, about how the arbitration would be conducted, or the costs, not the “condition precedent” question of whether the case was subject to arbitration.

Justice John D. Couriel was skeptical. “The trouble with the argument is that none of this is in the contract,” he said.  Seider replied that if the consumer gets to the rule, then the party would understand that the arbitrator decides.  But even then, Seider noted, the language itself was “permissive but not mandatory.”

Couriel pressed Seider on the language.  Seider said that the AAA Rule 7 language—”The arbitrator shall have the power to rule on his or her own jurisdiction”—did not exclude a decision by a court on arbitrability.

Justice Alan Lawson asked about the agreement language and whether it satisfied the “clear and unmistakable” standard for a delegation, which derives from First Options of Chicago Inc. v. Kaplan, 514 U.S. 938 (1995 (available at http://bit.ly/2WEXGnF). He said it is “basic contract interpretation,” and “you apply the basic rules” on whether the contract reflects what the parties agreed to—in this instance, whether there was a “clear and unmistakable” parties’ agreement on the arbitrator deciding arbitrability. He asked “whether the rules count” in determining what the parties agreed to under the contract.

Seider agreed that the rules count in reading the contract, and Lawson asked whether the rules’ language is clear and unmistakable evidence. Lawson said that in analyzing the contract, look at the whole agreement, leaving the rules to return to the first part of the contract, “the more conspicuous part”: The first page which incorporates the AAA rules.  With that, said Lawson, “it just seems pretty straightforward” that the parties agreed to arbitrate.

Seider said that “the clear and unmistakable standard is not supposed to require these inferential leaps” with cross-referenced rules, which he said are recognized by the U.S. Supreme Court as arcane.  He said people do not understand the concept of arbitrability.

Justice Jorge Labarga was more sympathetic to the respondents’ argument.  He said that consent must be waived for arbitration, adding, “And what I’m hearing here today is that the agreement–they can attach as many attachments as they want to online, you can have 100,000 pages, and in there, in a footnote, someplace they can say, ‘Oh, by the way the arbitrator gets to decide whether this goes to arbitration or not,’ and that is OK as long . . . as it is a part of the text of the package.”

Seider quickly agreed that burying provisions in the agreement will become the norm. Justice Lawson asked about the need for conspicuous language, and Seider conceded that First Options doesn’t discuss that point in defining “clear and unmistakable.”

Justice Couriel asked Seider to clarify if there is a clear statement in the contract on how it will affect people’s rights, and how Airbnb encourages parties to read terms and conditions carefully. He asked if the advisory was “over and above” the First Options requirements.

Seider agreed that Airbnb advises parties to read the terms and conditions. He countered that reading and understanding about 60 pages of procedures and rules are hard to understand and is not clear and unmistakable.

Justice Polston wasn’t convinced, noting that the rules “were there.” Seider said they were, but again stressed that a court arbitrability determination was not excluded by AAA Rule 7.

Justice Carlos G. Muñiz asked Tom Seider to clarify why previous case law has been overwhelmingly against the petitioners. Seider said that early decisions didn’t thoroughly analyze the question of arbitrability. He pointed out a lack of discussion on how contract language can be clear and unmistakable. “The analytical foundation of these cases really isn’t there,” concluded Seider.

* * *

Airbnb attorney Joel Perwin rebutted, noting five points:

1. Every case is decided on its own merits and facts.  

2. The test for clear and unmistakable is a matter of federal law. Justice Polston pushed back and agreed that arbitrability is a federal concept, but strongly noted that contract review is state law.  

3. Party sophistication is not an issue because “clear and unmistakable” is an objective test. There is no evidence to prove that the Does are not sophisticated enough to understand the click-wrap agreement, Perwin emphasized, but regardless, it is an objective test.

4. Addressing Tom Seider’s argument that Rule 7 is permissive, Perwin noted that the language is clear enough for anyone reading it to understand that the arbitrator has “the power” to decide the matter. That is why the courts have said that when arbitrators are designated to get the power under the contract and nothing is said about the courts, it means the arbitrators have the power to decide alone.

5. The statute and contract should not be interpreted to be unreliable on arbitrability. In the past, courts have been clear on these issues.

* * *

The Nov. 4 oral arguments in Airbnb v. Doe, which were televised and streamed on several web outlets including Facebook, are archived on YouTube at https://bit.ly/3EJ0rqa.  The full Florida Supreme Court docket on the case, with links to documents, is available at https://bit.ly/3GYoZxe.

* * *

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

[END]

Supreme Court Hears Badgerow, and Leans to Allowing Federal Courts to Broadly Decide on Arbitration Awards and Challenges

By Russ Bleemer

The U.S. Supreme Court expressed skepticism this morning about a petitioner’s argument that federal court jurisdiction over an arbitration matter under Federal Arbitration Act Sec. 4 on enforcing the submission to the ADR process does not also carry federal jurisdiction over to later FAA sections on confirming and overturning awards.

Today’s arguments in Badgerow v. Walters, No. 20-1143, the sole arbitration case on the current term’s docket, appeared to support the Court affirming a Fifth U.S. Circuit Court of Appeals decision confirming an arbitration award, rather than sending the case back to state court.

Petitioner’s attorney Daniel L. Geyser, a partner in the Denver and Dallas’s offices of Haynes and Boone, addressed opposition for his FAA interpretation from the bench during this morning’s oral arguments, which were streamed at the Court’s website.

His adversary, Washington, D.C., Williams & Connolly partner Lisa Blatt, told the court that confining federal court jurisdiction to arbitration enforcement requests under Sec. 4’s submission coverage but not the Sec. 9 enforcement provision and the Sec. 10 challenge provision would “decapitate the FAA.”

The argument leaned heavily toward allowing federal court jurisdiction for the enforcement questions, with Geyser facing resistance among the members of the Court during his argument.

The Court presented the question starkly, “Whether federal courts have subject-matter jurisdiction to confirm or vacate an arbitration award under Sections 9 and 10 of the FAA where the only basis for jurisdiction is that the underlying dispute involved a federal question.”

But it also provided a back story on the docket page:

This case presents a clear and intractable conflict regarding an important jurisdictional question under the Federal Arbitration Act (FAA), 9 U.S.C. 1-16.

As this Court has repeatedly confirmed, the FAA does not itself confer federal question jurisdiction; federal courts must have an independent jurisdictional basis to entertain matters under the Act. In Vaden v. Discover Bank, 556 U.S. 49 (2009), this Court held that a federal court, in reviewing a petition to compel arbitration under Section 4 of the Act, may “look through” the petition to decide whether the parties’ underlying dispute gives rise to federal-question jurisdiction. In so holding, the Court focused on the particular language of Section 4, which is not repeated elsewhere in the Act.

After Vaden, the circuits have squarely divided over whether the same “look through” approach also applies to motions to confirm or vacate an arbitration award under Sections 9 and 10. In Quezada v. Bechtel OG & C Constr. Servs. Inc., 946 F.3d 837 (5th Cir. 2020), the Fifth Circuit acknowledged the 3-2 “circuit split,” and a divided panel held that the “look-through” approach applies under Sections 9 and 10. In the proceedings below, the Fifth Circuit declared itself “bound” by that earlier decision, and applied the “look-through” approach to establish jurisdiction. That holding was outcome determinative, and this case is a perfect vehicle for resolving the widespread disagreement over this important threshold question.

The case involves a FINRA arbitration brought by former Louisiana employee of a unit of Ameriprise Financial Services Inc. against principals in the firm, which accompanied a federal court suit against the employer, as well as an EEOC claim.  The federal courts backed an arbitration award against the employee and for the principals.

In her attempt to overturn the federal courts’ jurisdiction on enforcement of the claim, the employee seeks to return to her state court claims challenging the award based on a fraud allegation against the principals. For full background, see Bryanna Rainwater, “Next at the Supreme Court: Badgerow’s Attempt to Reevaluate FAA Jurisdiction,” CPR Speaks (Sept. 15) (available here).

Daniel Geyser’s argument on behalf of the petitioner that the so-called look-through approach to analyzing federal court jurisdiction doesn’t apply to every FAA section met swift and strong resistance from the bench.  Justice Clarence Thomas led off questioning asking if the jurisdiction provided by the FAA was done in “a roundabout way” under Geyser’s formulation. The attorney countered that Congress could have put deployed “a free-standing provision that applied globally” instead of the designation about jurisdiction on backing arbitration submission agreements under Section 4.

The discussion led to a disagreement with the justices over the jurisdiction of the federal courts in matters with diversity and matters with federal questions. “In a federal question case,” said Geyser in response to skepticism about the difference from Justice Stephen Breyer, “the pleading before the Court under Section 9 and Section 10 is not the underlying case. It’s the attempt to enforce the arbitration contract. It’s saying, I want the arbitration contract enforced, not ‘I want to adjudicate the federal question.’”

But Breyer persisted, citing Vaden where an underlying matter might be employment or antitrust. “It doesn’t seem to make very much sense to say: Okay, go there, get an injunction” to send a case to arbitration, he said, but “when it comes time to enforce it, you can’t go there.  . . . Why you separate [Section 4] from the rest of it, I can’t get it.”

When Breyer conceded that there were language differences in the statute allowing for enforcement, Geyser agreed, noting, “I’d say that there is radically different language between Section 4 and the other sections.”

Geyser discussed with the Court the prospect of the federal courts having jurisdiction over hundreds of thousands of arbitrations after Chief Justice John G. Roberts Jr. questioned whether the problem was the fact that the case presents “the somewhat unusual situation where this is a federal statute that we have said does not give rise to federal jurisdiction.”

* * *

Respondents’ attorney Lisa Blatt faced more discussion and less resistance from the justices. She opened by noting that “the FAA is structured sequentially to facilitate all stages of arbitration to resolve the same underlying controversy,” and the continuing federal jurisdiction–from the early provisions providing for ensuring submission to arbitration to the later enforcement questions–makes sense.

“Congress presumably did not want federal courts to enforce arbitration agreements at the front end,” said Blatt, “only to see state courts to force do-overs at the back end.”

Justice Elena Kagan challenged Blatt on the lack of textual support for federal jurisdiction in FAA Sections 9 and 10. She countered that the statute’s referral to motions makes it procedural, with more of an inquiry needed for full jurisdiction. “It reads like .  . . a federal  . . . arbitration procedural act,” said Blatt, adding that when the act was passed, “The Federal Rules of Procedure didn’t exist.”

Blatt insisted that the statute provided grounds for the federal courts to decide on enforcing arbitration awards by looking at the underlying action. “You have plenty of textual hooks because you’ve got the word ‘motion,’” she explained, “and courts every day understand that motions aren’t — you know, motions don’t need a free standing.  . . .”

She continued, telling Chief Justice Roberts, “[T]his is the Federal Arbitration Act, so they were obviously thinking about cases that could otherwise be litigated in federal court. Whether that’s just diversity or a federal question, these are federal . . . controversies and these are treated as applications or requests to facilitate the arbitration from cradle to grave.”

In his rebuttal, Daniel Geyser warned that finding that the enforcement and challenge FAA sections carry federal jurisdiction, “you’re expanding federal jurisdiction to decide a bunch of cases that–where there is no advantage to having a federal court spend its expertise and bandwidth looking at cases that the state courts have faithfully handled.”

The transcript to today’s arguments are available on the U.S. Supreme Court website here. The Court is expected to decide the case before the term ends at the end of June.

* * *

The author edits Alternatives for CPR Speaks’ publisher, the International Institute for Conflict Prevention and Resolution.

[End]

The Law on Evidence for Foreign Arbitrations Returns to the Supreme Court

By Bryanna Rainwater

The question of whether a foreign or international tribunal includes arbitration panels for the purposes of providing evidence under a federal court order is back before the U.S. Supreme Court. The case is being briefed and is expected to be added for a conference in which the Court’s members will decide whether to hear the case.

The issue had been set as one of the first tasks for the Court in the opening week of the new 2021-2022 term, earlier this month.

 But in September, the Court dismissed the case at the parties’ request, and the issue about the reach of 28 U.S.C. §1782—”Assistance to foreign and international tribunals and to litigants before such tribunals”–disappeared from the court’s docket.

The latest case, ZF Automotive US, Inc., v. Luxshare, Ltd., Docket No. 21-401, filed Sept. 10, presents the identical question as the dismissed case, with one key difference. The issue presented is:

Whether 28 U.S.C. § 1782(a), which permits litigants to invoke the authority of United States courts 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, as the U.S. Courts of Appeals for the 2nd, 5th and 7th Circuits have held.

The difference in the new version of the case, according to the petitioners, is that it is a “live controversy” and therefore “free from a potential jurisdictional hurdle” that plagued Servotronics, Inc. v. Rolls-Royce PLC, No. 20-794, the case that was dismissed by the nation’s top Court on Sept. 29.

The hurdle referred to by the ZF Automotive petitioners, a Michigan auto parts manufacturer and a subsidiary of Germany’s ZF Friedrichshafen AG, and two executives associated with the company, is Servotronics’ mootness, because the discovery in the case was no longer needed in the face of the arbitration proceedings and the award. (The cert petition is available here.)

Servotronics had sought to end the Circuit split about the interpretation of the meaning “foreign international tribunal.” The Fourth and Sixth U.S. Circuit Courts of Appeals have held that 28 U.S.C. § 1782 encompasses private commercial arbitrable tribunals, as noted in the new ZF Automotive petition and its question presented, while the Second, Fifth, and Seventh Circuits have gone with a more limited approach which does not consider these private arbitrable tribunals to fit within the meaning of  the statute and, therefore, have denied discovery requests.

Servotronics was scheduled for oral argument on Oct. 5, the second day of the Court’s term, but removed from the calendar after the arbitration in the case was conducted in the spring, and the parties moved to dismiss the case in the wake of a July award.

For more on the Servotronics case dismissal and the case history, see Bryanna Rainwater, “Case Dismissed: Supreme Court Lightens Its Arbitration Load as Servotronics Is Removed from 2021-22 Docket,” CPR Speaks (Sept. 8) (available here).

The ZF Automotive petitioners urge the Court to clear up the circuit split and decide the true interpretative meaning of §1782. They argue that Servotronics amicus briefs warn that without resolving the §1782 issue for private international tribunals, there could be a disincentive for parties from entering into international contractual agreements.

Respondent Luxshare, a Hong Kong limited liability company, bought ZF AG’s Global Body Control Systems business in August 2017. During this transaction, the parties signed a Master Purchase Agreement which provides that disputes are to be governed under German law. The petitioners noted that Luxshare waited to file a §1782 application for discovery for more than two years after the transaction’s closing in pursuit of the purchaser’s fraud allegations.

Because the arbitration agreement specified that the DIS—that is, the German Arbitration Institute–would provide the panel to arbitrate the issues between the parties, the petitioner argues that the panel does not satisfy the requirement of being a “tribunal” within the meaning of §1782.

Luxshare filed the original claim in Michigan’s federal Eastern U.S. District Court under §1728 to seek discovery—documents and testimony–from ZF Automotive US and the officers before the arbitration. U.S. Magistrate Judge Anthony P. Patti granted the discovery in a limited scope, and ZF Automotive US’s subsequent motion to stay was denied by the district court.

Arguing that the interpretation of the Sixth Circuit—which oversees Michigan cases–is mistaken, the petitioners cite legal scholars, the Court’s own precedent and dictionary definitions to support their proposition that §1728(a) “includes only governmental or intergovernmental adjudicative bodies, and excludes private arbitrators that have no sovereign authority.”

In its reply brief, Luxshare counters that the case is a poor vehicle to examine the statute. “[T]he question presented may not be dispositive of this case, and may not even be necessary to resolve this case,” the reply notes, because even if the foreign tribunal definition included the DIS arbitration panel, their adversaries maintain that there are case-specific reasons for vacating discovery in the case. (The reply brief in opposition to certiorari is available here.)

Moreover, the reply notes that, like Servotronics, the case is likely to become moot before the Court can rule due to the unlikelihood of the petitioners agreeing to extend the time for arbitration.

In fact, the petitioners filed an Oct. 15 application for a Supreme Court stay on discovery to avoid the mootness issue with Associate Justice Brett Kavanaugh, who is the Court’s justice for the Sixth Circuit. (Available here.)

In a response filed yesterday, Luxshare contended that the ZF Automotive petitioners had not met the standards to grant a stay, and added that the stay would injure the company because it “will deny Luxshare the basic right to have its fraud claims against ZF US adjudicated based on the evidence.” 

Luxshare also wrote in its reply that the Court should deny the stay “for the additional reason that it would disserve the public interest, by both frustrating Congress’s purpose in enacting § 1782(a) and permitting fraud to go unremedied.”

An order had not been issued as of this post.

In addition:  ZF Automotive is no longer alone before the Court on § 1782.  The Luxshare brief advocating that the Court deny the cert petition points out that AlixPartners, LLC v. Fund for Protection of Investor Rights in Foreign States, No. 21-518, covers the same turf.  The Oct. 5 petition (available here) for certiorari asks, similarly, “Whether an ad hoc arbitration to resolve a commercial dispute between two parties is a ‘foreign or international tribunal’ under 28 U.S.C. § 1782(a) where the arbitral panel does not exercise any governmental or quasi-governmental authority.”

* * *

The author, a second-year student at Brooklyn Law School, is a 2021 CPR Fall Intern. Alternatives editor Russ Bleemer contributed to this post.

[END]

The Current State of Arbitration in India–Recent Developments

By Arjan Bir Singh Sodhi

CPR’s Arbitration Committee conducted a Sept. 23 Zoom on recent India conflict resolution developments. The session also provided an update on the “CPR Corporate Counsel Manual for Cross-Border Dispute Resolution–India Supplement.” (See the new supplement on CPR’s website at https://bit.ly/3oR6y7l.)

Viren Mascarenhas, a partner in King & Spalding’s London and New York offices who is the India Supplement’s co-editor and CPR Arbitration Committee vice chair, moderated the discussion. The panel included:

  • Tapasi Sil, general counsel–South Asia, GE Renewable Energy, Dehli, India
  • Rishab Gupta, partner, Shardul Amarchand Mangaldas & Co., Mumbai
  • Shaneen Parikh, partner (head-international arbitration), Cyril Amarchand Mangaldas, Mumbai
  • Sanjeev K. Kapoor, partner, Khaitan & Co., New Dehli, India
  • Quentin Pak, director, Burford Capital, Singapore

For more on the panelists’ and the program’s background, see CPR’s website here.

Viren Mascarenhas kicked off the discussion, welcoming the panelists, and updating on the new version of the CPR Corporate Counsel Manual for Cross-Border Dispute Resolution–India Supplement.

Tapasi Sil provided a view on her international work as an in-house counsel, and how business sees the development of India arbitration from her position as GE Renewable Energy counsel. She acknowledged the positive impacts amendments to the Indian Arbitration and Conciliation Act of 1996, but she also noted that business might face strains in using arbitration over time and costs.

Sil also noted a lack of expertise in commercial and technical knowledge required by the current India arbitrators. She said she hoped that India would welcome diversity and inclusion in arbitration in the future, and increase the numbers of women arbitrators.

Panelist Rishab Gupta also addressed the Indian Arbitration and Conciliation Act of 1996, which he said is based on the UNCITRAL Model Law on International Commercial Arbitration (1985). While pointing out many similarities of the Indian arbitration law with other common law jurisdictions, he noted that the law still required multiple amendments due to cultural factors such as:

  • A long history of having only ad hoc arbitration and a lack of institutional arbitration;
  • The need for a more professional arbitration body that focuses on arbitration expertise emphasizing commercial and technical knowledge;
  • A lack of professional arbitrators, and more focus on litigation for dispute resolution;
  • A lack of trust in the arbitration process, which, according to Gupta, is a result of the above three factors, and
  • The frequent move to Singapore as an arbitration seat for most corporate and cross-border disputes.

Shaneen Parikh of Cyril Amarchand Mangaldas covered India’s current Arbitration and Conciliation Act of 1996 amendment. She spoke about the April pro-arbitration judgment from the Indian Supreme Court, citing Justice Rohinton Fali Nariman in PASL Wind Solutions v. GE Power Conversion India (available, after cutting and pasting, at https://bit.ly/2WZpll8), where it was concluded that two Indian parties could choose a foreign seat of arbitration.

The judgment, noted Parikh, upholds a fundamental ADR principle, party autonomy. She also spoke about the interim relief covered in Section 9 (available, after cutting and pasting, at https://indiankanoon.org/doc/1079220) of the Indian Arbitration and Conciliation Act of 1996.

Furthermore, in the PASL Wind Solutions case, India Supreme Court Justice Nariman referred to the Convention on the Recognition and Enforcement of Foreign Arbitral Award, better known as the New York Convention (see www.newyorkconvention.org), to rule that different international commercial arbitration and foreign awards are enforceable. In the decision, Parikh pointed out, Justice Nariman also held that awards considerations should involve the territory involved, not the parties’ nationality.

Parikh concluded her segment of the panel discussion by discussing the need for more institutional arbitration for domestic and foreign matters.

Khaitan’s Sanjeev Kapoor discussed the interim arbitration procedures and how they are being enforced in India. He said that there are three major issues often faced by the Indian courts:

1) interim orders by arbitration tribunals or domestic arbitration institutions;

2) interim orders by emergency arbitrators in India, and interim orders from foreign arbitration tribunals, and

3) challenges to foreign awards, though he added that there are not many challenges when it comes to enforcing domestic awards in India.

Kapoor said that interim relief involves getting the award from a domestic tribunal and then filing an application under Section 9 of the Indian Arbitration and Conciliation Act of 1996. He also discussed PASL Wind Solutions.

Burford’s Quentin Pak shared his thoughts on the Indian capital market and third-party funding. He pointed out three major factors he said he believes are the factors in the increase in the third-party funding of international arbitration proceedings:

1) Singapore and Hong Kong are passing legislation encouraging third-party funding of arbitration.

2) International companies prefer the Singapore International Arbitration Centre over domestic seats, and

3) The Covid-19 pandemic put pressure on corporations’ balance sheets, accelerating the use of third-party funding. 

Pak concluded by talking about the requirement of funding in India-seated arbitrations, and the monetization of India awards because of the size and growth of the Indian market to international investors.

* * *

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

[END]

CPR’s International Conference: European Views on the Resolution of Complex Technology Disputes

By Tamia Sutherland

During the Oct. 6-7 CPR International Conference–the first the New York-based conflict resolution think tank and publisher of the CPR Speaks blog has held combining the work of its international advisory boards–CPR’s European Advisory Board presented a virtual panel centered around resolving complex technology disputes.

The panel discussed highly technical blockchain, patent, and intellectual property disputes. Mark McNeill, a New York and London partner in Quinn Emanuel Urquhart & Sullivan, moderated the panel that included:

  • Luke Sobota, a founding partner and Washington, D.C., managing partner at Three Crowns,
  • Edith Jamet, general counsel at SoftAtHome, a Colombes, France, software company, and
  • Mark Beckett, chief information officer at ArbiLex, an arbitration analytics and funding consulting firm based in Allston, Mass.

After introductions, Moderator McNeill posed a question about the resolution of blockchain disputes. Panelist Luke Sobota explained that blockchain operates as a fixed ledger stored internationally on computers world-wide, making the recorded data hack-proof as “the block exists everywhere at once, and nowhere in particular.” Though the blockchain is secure, it cannot anticipate every mistake or account for human error.

To illustrate what types of disputes may arise as a result of blockchain use, Sobota provided the following example: Blockchain technology can be used in commercial transactions by including a QR code with delivered goods that automatically transfers the payment from the buyer’s cryptocurrency account to the seller’s account, and records the transaction on a block when scanned by the recipient, also known as an oracle.

Sobota defined an oracle as “a real-world objective piece of data that the blockchain software, itself, can retrieve and verify.” This process does not require third-party involvement, and is “both the promise and limitation” of the technology, he said.

The oracle, however, can fall short. Disputes can arise when a recipient of goods fraudulently refuses to scan the QR code; the code has a bug that results in an excessive transfer of money; or the goods are partially damaged as there is no code for partial payment or refunds.

Due to blockchain’s decentralized nature, domestic courts do not have jurisdiction to resolve these transnational disputes, and sometimes, the parties are anonymous. Sobota explained that the two forms of arbitration best suited to resolve these unique disputes are (1) on-block arbitrations and (2) traditional commercial arbitrations.

On-block arbitrations are administered through various platforms and are currently “quite minimalist and only suitable to very simple transactions,” according to Sobota. In this case, parties agree that anonymous “jurors” will resolve the dispute, and the discrepancy is remedied automatically on the blockchain by issuing a new block.

For example, an on-block arbitration can immediately provide a refund for partially damaged goods. Panelist Mark Beckett mentioned Kleros, which is an example of an arbitration platform that relies on smart contracts and anonymized jurors to resolve disputes.

While this appears to be an easy and effective solution, questions about a lack of juror guidance, financial incentives, outside pressures, and concerns regarding juror consistency are critiques of the decentralized justice method.

Moderator McNeill then asked panelist Edith Jamet about the types of disputes she sees and how she prefers to resolve the disputes in her in-house role at a software company. She said she typically deals with patent issues. She said confidentiality is essential, and thus, mediation is best to find resolutions, and arbitrations are second best when the parties cannot come to a decision. She conceded, however, that sometimes court is mandatory and can be more secure.

Jamet discussed a mediation with the French tax administration where she had to demonstrate that her company’s technology was innovative and therefore eligible for a tax credit. Emphasizing Luke Sobota’s earlier point about finding sufficiently knowledgeable neutrals, Jamet said that she had to make an analogy to train tracks to illustrate her company’s technological software advancements because it was complex and she wanted the mediator to understand her arguments.

In response to an inquiry about the arbitration’s suitability for IP disputes, Mark Beckett raised skepticism about the number of neutrals who have technical knowledge. He noted that, in court, at least there is a right to appeal. Luke Sobota noted again that suitability depends on the neutrals chosen. In the case of typical IP contractual disputes, however, no special knowledge is necessary, said Sobota.  

Moderator McNeill asked Mark Beckett about ArbiLex, its mission, and what it can do. Beckett replied that ArbiLex is a legal technology startup that uses artificial intelligence and predictive analytics in international arbitration. The company provides practitioners and institutions with data to determine whether they should litigate or arbitrate a case. Ethics guidance states that lawyers generally cannot give a percentage chance of prevailing in a dispute due to predictive limitations. But ArbiLex is providing data for parties to assess the chances of prevailing in disputes.

Beckett explained that ArbiLex’s system can run combinations of different tribunals to provide outcome prediction analysis, provide information on who appointed certain arbitrators, predict case outcomes, relate outcomes to whom a particular arbitrator is sitting with, and provide data on how counsel has performed against each other. The information and graphics provided by ArbiLex, said Beckett, could cut down on the amount of research practitioners need to make tough decisions regarding dispute resolution of complex issues, where various interests may be pulling the practitioner in different directions.

Throughout the conversation, the neutrals that participate in CPR’s Technology Advisory Committee were mentioned as resources for finding technologically knowledgeable neutrals when these complex technology disputes arise.

* * *

The author, a second-year law student at the Howard University School of Law in Washington, D.C., is a CPR 2021 Fall Intern.

 [END]

The Before Times: CCA Panel Looks at Arbitration Preparation

By Bryanna Rainwater

An Oct. 1 College of Commercial Arbitrators online program provided interesting nuts and bolts on arbitration before proceedings begin. 

The CCA, an invite-only membership group of about 250 arbitrators based in Austin, Texas, that advocates for best practices, presented the first of a series of 20th anniversary arbitrator talks with Juris Publishing of New York.

“Using the Pre-Hearing Conference to Win Your Commercial Arbitration (CCA Series, Session I),” featured the following panelists:

The panel discussed issues surrounding preliminary hearings, including preparation before the hearing, knowledge of the arbitral rules that will govern the preliminary hearing, and advice for speaking with counsel beforehand.

The panel members stressed the value of flexibility among the parties and the need to come prepared to the preliminary hearing. Tyrone Holt advised, “You need to be as prepared to talk to the arbitrator as the arbitrator is to talk to you.” Laura Kaster noted, “One of the things that I think is very different about arbitration is that the advocates have an opportunity to define the process if they want to.”

Holt added, “As an arbitrator I come to the preliminary hearing with three modes and three goals. My first mode is to listen,” as a way to gather information and see if the parties are in line with the rules of arbitration they chose. He continued, “My second mode . . . is to try mediate, cajole, [and] serve as a communication link to resolve by agreement those disputes which you have, or disagreements that need to be addressed, in order to get a scheduling order in place.”

The final goal “which is by default, when necessary,” said Holt, “is to decide those issues which need to be decided that you all can’t agree upon during the scheduling conference.”

When asking whether the parties should routinely meet ahead of the preliminary hearing, Laura Kaster, who heads her own independent ADR practice, noted, “I think this is a topic that actually . . .  arbitrators differ about, and differ in different cases about.”

Panelist Eugene Farber said that he encourages the practice “because it saves time and money,” which is a key aspect and drawing point for parties interested in alternative dispute resolution. But he cautioned that “it depends on the nature of the case. If I perceive that counsel are not getting along, . . . and this is a really significant dispute, then I won’t do it.”

The panel also discussed issues surrounding subpoenas and depositions, noting arbitration’s difference from courts and that the practice is not subject to traditional civil procedure rules. Farber noted that “this is complicated.  . . . In some states like New York, and I think Illinois, counsel has the independent right to issue subpoenas, so that makes it more complicated. If you’re in one of those states, you may want to check with your arbitrator because a lot of arbitrators don’t like that. They don’t want counsel issuing their own subpoenas. They want to control their own proceeding.”

Farber also cautioned that, on the other hand, “There are some states and federal circuits that say that an arbitrator does not have the right to issue a subpoena to a third-party witness.”

As to arbitration hearing confidentiality, Laura Kaster said that “this is an area that most people confuse. Arbitration is private, but . . . there aren’t constrictions on confidentiality with respect to everyone. Most of the rules apply to the arbitral institution and the arbitrators but many of the rules do not apply to the parties, the counsel and the witnesses.”

She further stressed the need for witnesses to be subject to confidentiality since they are often overlooked.

Farber urged attorneys going into the preliminary hearing, “Know your rules,” because they differ among arbitral institutions, such as the American Arbitration Association and the International Institute for Conflict Prevention and Resolution. He added, “CPR, for example, says the entire proceeding is confidential. So you have to know your institution’s rules.” See Rule 20 on the presumption of confidentiality of CPR’s 2019 Administered Arbitration Rules at http://bit.ly/2SGoW0z.

When discussing relief requested and dispositive motions, the panel had differing views. On granting relief, Tyrone Holt said he uses the practice of setting out relief requested early on to avoid a possible “fishing expedition” for relief.

But panelists Laura Kaster and Eugene Farber noted that there are times when the amount or type of relief requested may change over the course of discovery and disclosure.

The panel members agreed that a request for a dispositive motion is a tricky subject. Farber noted that arbitrators are more reluctant than a typical trial judge to grant dispositive motions. “We got to get it right,” he said, “because there’s no appeal” in arbitration which makes the arbitrator’s decision more final than a judge’s ruling. Farber suggested that using an “ex-judge arbitrator” in these situations may be helpful.

Overall, the panel suggested that to make a positive impression on your arbitrator, come to the preliminary hearing well prepared. Kaster reminded the online attendees that “it is a small room when you’re in an arbitration. [In] a small room or a small Zoom, you have to keep the civility level up and the antagonism down.”

Holt said, “Come prepared based upon the facts, the law and the rules.” Farber advised to “not be particularly hard-nosed,” especially in light of family or personal issues in relation to the other parties in scheduling the session. The panel members emphasized as important arbitration management skills the need for knowing the rules, making an effort to speak to the other side before the session, being courteous, and perhaps even using humor when appropriate.

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

[END]

Notes on Diversity: Princeton’s Ramona Romero on Higher Education; Toronto Consultant/Neutral Verlyn Francis on ADR Ethics

By Arjan Bir Singh Sodhi

Here is a synopsis of the CPR Diversity in ADR Task Force meeting conducted online on Tuesday, Oct. 5, 2021.

Welcome & Introductions

CPR Diversity in ADR Task Force Co-Chairs the Hon. Timothy K. Lewis and the Hon. Shira A. Scheindlin welcomed and thanked the panelists and attendees for joining.

Interview with Ramona E. Romero, vice president and general counsel at Princeton University, in Princeton, N.J.

Task Force co-chair Timothy Lewis, retired Third U.S. Circuit Court judge and counsel in Schnader Harrison Segal & Lewis started the panel discussion on diversity in ADR. He gave a brief introduction for Romero and asked her to share her experience as an immigrant to the United States. Romero started her interview by thanking all the participants of the meeting. She also shared her story of moving to the United States at age 11 from the Dominican Republic. From an early age, Romero said she emphasized the value of working hard. She placed much importance on collaboration and how it helped her learn.

Task Force co-chair Shira Scheindlin, retired New York U.S. District Court judge and of counsel in New York’s Stroock & Stroock & Lavan, led the second part of the interview, asking Romero to share her views on considering characteristics that are fair for admission purposes in law schools and universities. Romero replied that she believes affirmative action is still required due to racial and ethical inequalities in schooling, housing, employment, and policing.  She discussed Students for Fair Admissions Inc. v. President & Fellows of Harvard College, No. 20-1199, which highlights the issues faced by the students regarding their university admissions.

Romero then shared her view on immigration policy, noting, “Immigration is essential to higher education as it is essential to the diverse economy of the United States.” She emphasized the importance of having a diverse U.S. judiciary as it increases trust and perception of fairness. Because, she said, the majority of people who deal with the judiciary are people of color, having a diverse judiciary with more people of color and women will aid in building trust for the judicial process.

Romero concluded her discussion by hoping that corporations, businesses and interested parties can do better in the future by promoting the advancement of women and people of color in the legal profession.

Verlyn Francis, Presentation on “Ethics in Arbitration: Bias, Diversity, and Inclusion.”

Francis is an arbitrator, mediator, and trainer at Isiko Dispute Resolution Consultants, Toronto, and a Professor of ADR at Centennial College, also in Toronto. She started her presentation by talking about the genesis of ethics and impartiality of arbitrators and how we can reduce impartiality bias in arbitration.

She stressed the importance of the code of ethics in the arbitration proceeding. Francis spoke about the consequences of applying those ethical codes to people who didn’t play any role in developing those codes. She said she hopes that many institutions will work on improving rules, ethics, and impartiality in arbitration.

She also spoke about layers of cultural affiliation that can often create stereotypes for other cultures. Hence, she said, an arbitrator should always be aware of implicit bias that can have discriminatory actions towards the parties. She then acknowledged CPR’s recent implicit bias webinar, Imperfect Impartiality: How Neutrals Can Combat Implicit Bias.

She said that often implicit bias operates without awareness of the participants, but the discrimination it produces is visible to those at a disadvantage.

She also expressed concern for the lack of diversity in arbitration that can have its roots in the legal profession, since ADR practitioners are mostly former judges or senior lawyers in law firms where minorities often remain significantly underrepresented.

She also mentioned the Jay-Z case in which the American Arbitration Association roster was challenged due to the lack of available African-American arbitrators. Since that case, the AAA has worked to develop a diverse roster. Francis also noted CPR’s initiatives to further promote diversity and inclusion in the field of ADR. She praised the steps taken by the American Bar Association by passing Resolution 105, which encourages the inclusion of diverse neutrals. She concluded her presentation by encouraging all the panelists to promote diversity in ADR.

* * *

Allen Waxman, CPR’s President and Chief Executive Officer thanked all the panelists for their participation in the discussion. Waxman discussed the importance of understanding dynamics within the tribunal to ensure that all the efforts to increase diversity translate to greater inclusivity.

CPR Announcements closed the Task Force meeting, discussing several events hosted by the CPR Institute, including the 2021 CPR International Conference on Business Dispute Management, which followed the Diversity Task Force event on Oct 6-7 (information at https://www.cpradr.org/events-classes/upcoming/CPR-International-Conference) (Watch CPR Speaks for excerpts from the conference). More events can be found here, and participants were asked to save the date for the 2022 CPR Annual Meeting,  March 2-4.

* * *

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

[END]

CPR Releases Update to Employment-Related Mass Claims Protocol

The International Institute for Conflict Prevention and Resolution (CPR), working with a diverse task force of leaders in employment law and alternative dispute resolution (ADR), has launched an updated version of its Employment-Related Mass Claims Protocol (the “Protocol”). The Task Force included leading counsel from the plaintiff’s bar, in-house employment counsel, corporate defense attorneys and neutrals (arbitrators and mediators).

The original Protocol was launched in November 2019.  It was reviewed by U.S. District Court Judge Edward M. Chen, of the U.S. District Court for the Northern District of California, in November 2020, in McGrath v. DoorDash, Inc., No. 19-cv-05279 (N.D. Cal. Nov. 5, 2020), who found that “the terms of the Mass-Claims Protocol appear fair.”  Working together over the past 10 months, the Task Force sought to make improvements and further enhance the Protocol. 

An initial set of revisions by the Task Force was released in April 2021, and incorporated CPR’s then newly-launched Administered Employment Arbitration Rules as well as other clarifying changes. See CPR Speaks, April 14, 2021.  Since then, the Task Force has continued to work together to develop the current version of the Protocol, which includes a novel approach to selecting neutrals that will enhance both efficiency and diversity.  The updated version also provides greater detail in describing the mediation process and other procedures.

The procedure outlined in the Protocol applies where it has been incorporated into an agreement between the parties, either before or after a dispute arises, and where there are 30 or more similar cases filed with CPR against one company.

The procedure requires fast track arbitration of randomly selected test cases while proceedings in the other cases are paused. The awards from those cases are anonymized and provided to a mediator to work with the parties and their counsel in trying to identify a global framework for resolving the remaining cases.  If the mediation is successful, each person who brought an arbitration will be presented with an opportunity to settle their case according to the global framework or to proceed with their arbitration. If the mediation fails to identify a global framework, then any of the parties may opt out of the arbitration process and go to court.

Distinguishing features of the Protocol include:

  • Requiring within the Protocol itself that certain due process protections be afforded to employees or others who file cases.
  • A novel fee structure that does not require the company to pay all filing fees up front but instead collects an upfront initiation fee followed by fees paid as each case is addressed.
  • Consistent with CPR’s Diversity Commitment, nominating a diverse pool of arbitrators from which the parties will choose the arbitrators who ultimately will resolve their cases.
  • Innovative mechanisms to encourage all parties to reach a faster resolution of their cases, providing parties with the opportunity and incentives to reach a global framework for resolving all of their cases before proceeding with more arbitrations.

In keeping with its commitment to the parties, CPR sets forth the procedures in detail so that the parties may understand what is expected of them and are provided a practical pathway toward resolution. CPR is also willing to work with the parties on agreed-upon variations to these procedures.

“It has been a privilege to work with and be guided by the experiences and perspectives of this Task Force,” noted Allen Waxman, President & CEO of CPR, adding, “With the benefit of the members’ input, the Protocol offers an innovative procedure for employers and their employees or contractors to resolve their disputes when many arise at once – providing the parties with more options toward finding a resolution.”

Jahan Sagafi, partner of Outten & Golden, Task Force Co-Chair, and a lawyer who frequently represents workers in employment disputes, stated that “while I am very concerned about Supreme Court precedent allowing employers to force workers to submit to individual arbitration, given those realities, CPR’s Protocol provides a fair process to resolve those claims efficiently.  CPR should be commended for considering a variety of perspectives from the Task Force in completing the Protocol.”

“CPR’s Protocol represents a valuable contribution toward the resolution of many similar employment claims,” commented Task Force Co-Chair Aaron Warshaw, a partner in Ogletree, Deakins, Nash, Smoak & Stewart, a law firm that represents management and companies in labor disputes, “The Protocol is an important option for companies putting in place arbitration programs and one that should be seriously considered.”

“CPR has consistently been a leader in offering innovative ways to resolve disputes,” observed the Honorable Timothy K. Lewis, Task Force member, arbitrator and a retired judge on the U.S. District Court and Third U.S. Circuit Court of Appeals, adding, “The Protocol is another such offering for the complex challenges posed by the filing of a mass of cases. Its procedures reflect careful considerations to foster resolution in a fair and efficient fashion. In addition, the Protocol’s commitment to greater diversity in the pool of candidates who will be selected to arbitrate cases is also a meaningful step in addressing the lack of diversity and inclusion in the field of ADR.”

For more information, see the File a Case or Employment Disputes sections of CPR’s website, or contact Helena Tavares Erickson at herickson@cpradr.org.  Also review Frequently Asked Questions for the Protocol.

ABOUT CPR

Established in 1977, CPR is an independent nonprofit organization that promotes the prevention and resolution of conflict to better enable purpose.

The CPR Institute drives a global prevention and dispute resolution culture through the thought leadership of its diverse member companies, leading mediators and arbitrators, law firms, individual practitioners, and academics. It convenes committees to share best practices and develop innovative tools. It connects thought leaders through global, regional, and smaller events. It publishes a monthly journal on related topics and advocates for expanding the capacity for dispute prevention and resolution globally through a variety of initiatives.

CPR Dispute Resolution provides leading edge dispute management services – mediation, arbitration, early neutral evaluation, dispute review boards and others – as well as training and education. It is uniquely positioned to resolve disputes by leveraging the resources generated by the leaders who participate in the CPR Institute.  It has deep experience in dispute management, a deep bench on its global Panel of Distinguished Neutrals, and deep expertise across a variety of subject areas.

Visit cpradr.org to learn more.

[END]

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

By Bryanna Rainwater

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

By Bryanna Rainwater

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

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

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

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

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

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

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

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

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

* * *

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

[END]