CPR’s new website now hosts the CPR Speaks blog. You can find new posts, at https://www.cpradr.org/news/cpr-speaks.
India Court Strikes Arbitration Award, Raising Questions about the Use of BITs
By Shourya Arora
In August, the Delhi High Court granted relief to the Indian government by setting aside a $562.2 million International Chamber of Commerce arbitral award made in favor of Devas Multimedia due to Devas’s sudden termination of its contract with Antrix Corp., a commercial arm of the Indian Space Research Organization, India’s state-owned national space agency. Devas Multimedia Private Ltd. v. Antrix Corp. Ltd., ICC Case No. 18051/CYK. The main grounds for this annulment were that it was illegal and went against India’s public policy.
The Devas-Antrix saga began with the alleged wrongful termination of a 2005 agreement between two Indian companies, Devas Multimedia Private Ltd. and the Indian State-owned entity, Antrix, for the lease of an electromagnetic spectrum frequency, or S-band, on two satellites. Devas planned to provide mobile multimedia and broadband data services to the Indian market using the S-band spectrum.
Antrix terminated the contract in 2011, citing, among other things, that it was unable to obtain the necessary frequency and orbital slot coordination (the “Article 7(c) ground”) and that the CCS decision was a force majeure event rendering the performance of the Contract impossible (the “Article 11 ground”).
Devas commenced an ICC arbitration seated in New Delhi under the contract terms, claiming damages for wrongful termination. On Sept. 14, 2015, the ICC tribunal issued the award, ordering Antrix to pay USD 562.5 million in damages plus interest. But in late summer, on Aug. 29, the court annulled the arbitral award because it was patently illegal and in contravention of Indian public policy. See Bhadra Sinha, “Antrix-Devas case: What was the dispute & why SC upheld NCLAT order to wind up Devas for fraud,” The Print (Jan. 19, 2022) (available at https://bit.ly/3Vwuzyh).
This factual framework sparked two reported bilateral investment treaty arbitrations by Devas’ shareholders against India for expropriation of investments and treaty norms. The shareholders received favorable damages awards in these investment treaty arbitrations.
First, note that in January 2022, the India Supreme Court upheld Devas’ compulsory winding up on the grounds of fraud–referred to as the “Liquidation Judgment”–in the context of enforcement proceedings pending in multiple jurisdictions concerning the award discussed above and the investment treaty arbitration awards.
According to clause 34(2)(b)(ii) of the Indian Arbitration and Conciliation Act 1996, a court may annul an arbitral award if it is “in conflict with the public policy of India.” Explanation 1 to section 34 of the act’s arbitral award would be in opposition to India’s public policy only if:
- the making of the award was induced or affected by fraud or corruption;
- it contravenes the fundamental policy of Indian law; or
- it conflicts with the most basic notions of morality or justice.
Furthermore, under section 34 (2a)of the Act, a domestic arbitration award may be revoked if it is discovered to be “vitiated by patent illegality appearing on the face” of the award. Pankaj Bajpai, “Arbitral award vitiated by patent illegality appearing on face of same, calls for interference: SC,” LegitEye (Aug. 6) (available at https://bit.ly/3yRuYl9). An arbitral award cannot be set aside on patent illegality merely because of an erroneous application of the law or by reappreciation of evidence.
The Court held that the tribunal, in the Antrix-Devas case, had committed patent illegality as it (i) incorrectly excluded the pre-contractual negotiations between the parties, (ii) rendered contradictory findings on the applicability of the force majeure clause, and (iii) the finding of fraud in the winding-up proceedings established that the ICC Award “conflict[s] with the ‘most basic notions of justice,’“ and “thus antithetical to the fundamental policy of Indian law.“ (See the first link above to the opinion.) For all these reasons, the Court allowed the s34 application and set aside the ICC Award.
More recently, in February 2022, Devas brought another BIT claim against India under the India-Mauritius BIT in which Devas shareholders claim that the retaliatory investigations, seizure of funds, and raids by Indian authorities on Devas are part of an audacious scheme to avoid paying the awards. It is still unclear, however, how the August setting-aside ruling will affect the proceedings of this case, and what the ultimate outcome may be.
The Court’s decision to set aside the award is the most recent development in the Devas-Antrix saga’s 10-year history. It is probable that the claimants in the continuing India-Mauritius BIT case, which involves allegations of governmental retaliation, will rely on this judgment. The setting-aside judgment was described as “a mockery of the international arbitration system and a warning to investors that the Indian judiciary is being weaponized against those who assert their legal rights” by the claimants’ attorney.
With reasonable success, claimants Devas and its shareholders have sought to have their arbitral awards enforced in other jurisdictions. It remains to be seen whether enforcement courts defer to this setting-aside decision, even though enforcement courts typically are reluctant to enforce arbitral awards that have been annulled in the seat courts.
The dilemma for India: India is not a signatory to the ICSID Convention. This is for historical reasons, as it has always been of the view that the supremacy of its courts cannot be compromised by providing finality and immunity from the challenge for an ICSID arbitral tribunal decision.
India seems to have gotten caught on the wrong foot. At one level, it has exposed itself to criticism of not being an investment-friendly destination–an image it cannot afford, given the country’s enormous task to pull its millions out of poverty. On the other hand, there are legal issues that it must now face with billions at stake.
Lessons for India: There is now, somewhat all of a sudden, a new dimension to bilateral investment treaties (and indeed, the picture is unfolding the world over).
To begin with, India needs to examine if its current BITs need to be modified or refined in light of the recent global experience. What are the legitimate rights a foreign investor must be assured of, and where does a country need to draw the line?
Second, India must realize its inherent disadvantage in BIT investment arbitrations. It is generally recognized that investment arbitrations are skewed in favor of foreign investors. This disadvantage is further fueled by the limited pool of investment arbitrators and lawyers and the negligible participation of Indians in it. As a result, India is driven to appoint non-Indians as arbitrators or lawyers in most of its BIT disputes.
It should be a legitimate expectation of a nation as vast and commercially significant as India to participate in the decision-making process where it is involved. India thus needs to take vigorous steps to train and upgrade the skills of its law officers, and focus on giving arbitrations and arbitral institutes a boost so that locally grown talent is nurtured and emerges.
Third, India must consider whether it should accede to the ICSID Convention. More than 140 countries have ratified the Convention as of now (more have signed and are in the ratification process). Can India afford to sit outside this community of nations?
Lessons for the investors: Fighting a legal battle against a host country isn’t an ideal situation for any long-term investor. An investor’s focus must be on molding its business plans to fit in with realities on the ground, taking the thick with the thin, just as any domestic investor would. A foreign investor’s interest would be equally well served (and foreign investment not suffer) if the treaty in question is confined to protecting against seriously inequitable or unfair treatment. If a BIT is too expansive, its interpretation or application is not in the best interest of investors or the future of BITs.
The following are some recommendations for future BITs–especially for Indian BITs:
- If inserted, the “FET Standard” should be defined as exhaustively as possible. “‘Fair and equitable treatment’ includes the obligation not to deny justice in criminal, civil, or administrative adjudicatory proceedings in accordance with the principle of due process embodied in the principal legal systems of the world.” 2004 U.S. Model BIT (available at https://bit.ly/3ghp9ao). In addition, exceptions to the application of the standard should be indicated.
- There should be a saving clause for the use of regulatory powers, preferably as an exception to the FET clause. States must be free to regulate sovereign affairs without fearing an expensive investment arbitration claim. The regulation, however, should not be arbitrary or discriminatory.
- The defense of “necessity” should be given a definite shape and boundaries of application. Tribunals should assess impugned actions of the state within such ambit. (States have made pleas of necessity under various investment treaties, notably the Argentina-US BIT (Article XI), which provides that the state may take measures “necessary” for “public order,” “the fulfillment of its obligations with respect to the maintenance or restoration of international peace or security,” and its “essential security interests.” Argentina–United States of America BIT (1991) (available at https://bit.ly/3CMVGNc).)
- The respondent-state must be empowered to raise counterclaims based on the claimant’s obligations. Furthermore, the respondent-state must have equitable remedies, such as challenging the claimant’s bona fides. For this purpose, the BIT may provide a stage for determining a prima facie breach.
- The loser should pay all costs of arbitration proceedings. For instance, Norway’s Model BIT requires the “costs of arbitration shall in principle be borne by the unsuccessful Party.” See the model at https://bit.ly/3g28zeq, noting that the tribunal may apportion such costs “if it determines that apportionment is reasonable, taking into account the circumstances of the case.”
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The author, an LLM student at the Caruso School of Law at Pepperdine University in Malibu, Calif., is a Fall 2022 CPR Intern.
ACC’s Tori Payne on Measuring Diversity Efforts
By Cenadra Gopala-Foster
On Oct. 3, the CPR National Task Force on Diversity in ADR hosted Association of Corporate Counsel Vice President and Chief Membership Officer Tori Payne. She led a presentation on the ACC Foundation Diversity, Equity & Inclusion Maturity Model.
As described by Payne, the model is a living, evolving tool designed for use by legal departments. It outlines clear descriptions for three levels of DEI maturity–“early,” “intermediate,” and “advanced.”
For example, progress throughout the three levels for “governance and resourcing,” policies entail moving from the early stage of having little to no consistent policies incorporating an anti-racism or DEI message toward an intermediate level where the company adopts basic governance models with clear distinctions between policy-planning formulation and execution, closing the gaps between policies and practices, and monitoring identified goals and objectives.
At the final, a “mature” level, policies and projects operate with a consistent feedback loop using a cross-section of functional stakeholders, with diversity and equity resources–including budget–committed to the function. DEI also continues to develop in these mature settings–see below.
The ACC’s main concern for the model was practicability, reported Payne, so the in-depth descriptions can aid DEI efforts and gauge where improvements are needed.
The DEI Maturity Model was jointly developed by ACC and the ACC Foundation, in consultation with an advisory committee of DEI leaders from the legal and business communities who are responsible for advancing DEI results at their organizations. The tool derived from ACC’s recognition that law firms and in-house companies’ were challenged to assess the effectiveness of their DEI efforts without clear indicia for progress and success. The model provides business leaders with a critical snapshot of where their departments are currently and a roadmap on achieving future goals.
For example, in 2011, 11.7% of lawyers identified as people of color; a decade later in 2021, it has rose only 3% to 14.6%. Payne said she hopes this tool will give company leadership the insight to improve diversity efforts.
Throughout Payne’s presentation, she reaffirmed the importance of metrics, and how essential they are for DEI efforts. Metrics will help DEI efforts to measure progress, which will in turn affect future budgetary decisions. The ACC, she said, intends for this model to continue to be refined and improved based on the valuable feedback from those who use it.
Both CPR and the ACC recognize that diversity pledges can serve an important educational and consciousness-raising function. Payne expressed support for CPR’s Diversity Commitment-Ray Corollary Initiative. She further noted that the maturity model would aid companies who sign the CPR Pledge in creating additional policies and supportive mechanisms that will increase the nomination and selection of diverse neutrals. She stressed the need for companies to work only with provider firms that mandate all neutral requests, including diverse individuals.
CPR has taken a step toward encouraging diversity with a new Diversity Commitment Clause, which can be used by companies in their contract’s arbitration agreements. The clause was revised in the summer. It states that “[t]he parties agree that however the arbitrators are designated or selected, at least one member of any tribunal of three arbitrators shall be a member of a diverse group, such as women, persons of color, members of the LGBTQ community, disabled persons, or as otherwise agreed to by the parties to this Agreement at any time prior to appointment of the tribunal.”
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The author is 2022-2023 CPR Intern under CPR’s consortium agreement with Washington, D.C.’s Howard University School of Law, where she is a second-year student.
The ADR Legacy of CPR’s Founding Father, James F. Henry–In Memoriam
CPR’s founder, James F. Henry, has passed away.
He leaves behind a legacy trailblazing the use of methods other than litigation to resolve business disputes. His impact is immeasurable. He is responsible for promoting processes, techniques, and tools for alternative dispute resolution for major business conflicts, and expanding its use by lawyers throughout the world.
He founded and then served as president and chief executive officer of CPR, overseeing its initial initiatives with a group of in-house counsel to later include law firm practitioners, academics, and international firms and partner organizations, from CPR’s inception until his 2000 retirement.
Even after his retirement, he continued to advocate for better dispute resolution, writing–including in Alternatives to the High Cost of Litigation, which he founded in 1983 (and for which he served as publisher during his CPR years)–and occasionally speaking.
CPR established the James F. Henry Award in 2002. It honors outstanding achievement by individuals for distinguished, sustained contributions to the field of ADR, based on their leadership, innovation and sustaining commitment to the field.
“We’re all privileged and humbled to be walking in Jim Henry’s footsteps,” said Allen Waxman, CPR’s president and chief executive officer since 2019. “He foresaw in a way many others did not the need for business to find better ways to resolve their conflicts than what court systems might offer. He was a maven for innovation, pushing for greater creativity, efficiency, and fairness in ADR processes. We are all beneficiaries of his work and leadership.”
Henry died on Aug. 28. He had lived in Waccabuc, N.Y., where he resided for seven decades. He was 91.
Henry’s family has announced a celebration of his life on Sunday, Nov. 13, at 3:00 p.m., in Waccabuc. They have asked that if you are able to attend, please let the family know so that they can send you an invitation. The contact is Stephen Henry at email@example.com.
Henry founded CPR in 1977 to continue previous foundation work on social justice issues that included studying poverty, Native American issues, and tropical disease eradication. In due course, it became the Center for Public Resources (later to change to the International Institute for Conflict Prevention and Resolution); its subject focus was business ADR. His delivery devices included new sets of conflict resolution rules, tools, initiatives and programs. (A timeline of Henry’s and CPR’s history is available on CPR’s website here.)
Initially, he and the organization championed mediation and negotiation. He strove to have lawyers talk first before marching to courts. That resulted in the mid-1980s in CPR’s signature “Pledge,” the Corporate Policy Statement on Alternatives to Litigation. (See background and text https://bit.ly/3CDmyjH.) Under the nonbinding pledge, a company agrees that it will consider—and be ready to negotiate–a resolution with the dispute resolvers at its adversaries.
The pledge idea spread from CPR to companies throughout the legal world. It became CPR’s signature effort in the 1980s. Thousands of big companies and subsidiaries signed on.
That led to a similar pledge for law firms—that they would discuss with the clients in appropriate case the use of ADR. Industry commitments followed, in which groups of businesses agreed to resolve, by negotiation or mediation, specific disputes that arise among the competitors within those industries. (The pledges and commitments can be seen here.) Similarly, Henry spearheaded efforts at CPR to bring together academics and attorneys at all levels to translate theory into effective practice.
The resonance of Henry’s CPR pledge continued well after his retirement, and continues today. In 2012, a “21st Century Pledge” modernized the idea to institutionalize the pursuit of corporate ADR systems.
CPR has continued this tradition of pledges seeking innovation in dispute management by recently establishing a pledge that businesses will consider incorporating mechanisms into their arrangements with others, not just to resolve disputes, but prevent them altogether. See CPR’s Dispute Prevention Pledge for Business Relationships (revised April 5, 2022) at www.cpradr.org/resource-center/adr-pledges/dispute-prevention-pledge-for-business-relationships.
The pledge didn’t stand alone at CPR, even in the mid-1980s. With the assistance of the late Harvard Law School Prof. Frank E.A. Sander, Henry established the CPR Awards (go here for details on this year’s awards-entry deadline next month and submission instructions), to recognize but also to incentive business and academic development of the processes and systems that CPR began to produce, including nonadministered arbitration rules and guidelines for establishing and using minitrials.
Those resources and materials, and many others including international and translated versions, are still vital, and can be found on CPR’s website at https://bit.ly/3ryxCID. (Sander became the longest serving member of Alternatives’ editorial board, from its 1983 inception until his death in 2018.)
Henry correctly projected that private ADR forums initiated by companies and industries would continue to proliferate after CPR’s 1980s work. He cited and worked to expand corporate dispute resolution programs ranging from employment settings to case management. He later worked with court administrators on programs that impacted the installation of ADR offices by Presidents George H.W. Bush and Bill Clinton in the 1990s in every federal court in the nation, as well with executive branch government ADR officials. And he expanded CPR’s initiatives to arbitration rules and ethics standards for ADR providers and practitioners.
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Henry’s principle delivery system, however, actually was the lawyers themselves.
Exhibiting a lifelong devotion to improving society through law, Henry continually emphasized best practices in lawyering. He had confidence that excellent legal skills would bring the informal dispute resolution processes that had been performed for years to a valued place in legal operations and management.
Henry set out to assemble those people, and make them available to disputes. CPR Dispute Resolution has grown its Panel of Distinguished Neutrals to more than 600 neutrals today, and has addressed cases valued in the billions of dollars.
Henry saw the work of lawyers as the key to ADR success, as well as CPR, a New York-based nonprofit. He was a tireless cheerleader throughout his tenure as CPR’s president and CEO until his 2000 retirement for bringing out the best in the legal profession, and making ADR skills a requirement.
That in turn created a network of devotees to, and members in, what came to be known in the mid-1990s as the CPR Institute for Dispute Resolution, ahead of the current name that added the international perspective begun under Henry. CPR members have led in the use of commercial conflict resolution for their clients’ problems, both in house and at law firms, world-wide.
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Jim Henry was born in 1930 in Grand Rapids, Mich., and attended Williams College. He later served as a U.S. Army Intelligence Officer, and was awarded law degrees from the Georgetown University Law Center in Washington, D.C., and the New York University School of Law.
CPR President Allen Waxman said, “On behalf of the board and staff at the International Institute for Conflict Prevention and Resolution, we send deepest condolences to Jim’s wife, Susan Henry, and their three children and eight grandchildren.”
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The November issue of Alternatives to the High Cost of Litigation has published an expanded version of this tribute to Jim Henry’s life. See CPR News, 40 Alternatives 154 (November 2022) (available at https://bit.ly/3DgLuMV). An archive of Henry’s Alternatives feature articles can be accessed directly on the Wiley Online Library at https://bit.ly/3ylmkLs.
Supreme Court Limits California’s PAGA Law on Employment Claims, Preempting It in Part under the Federal Arbitration Act
By Arjan Bir Singh Sodhi & Russ Bleemer
The U.S. Supreme Court ruled this morning that employers may require their workers to arbitrate employment disputes under California’s Private Attorneys General Act, a 2003 law that allows Californians to file suit on behalf of the state for employment-law violations.
The Federal Arbitration Act, the Court found today in Viking River Cruises Inc. v. Moriana, No. 20–1573, preempts at least in part the California state PAGA law, which had been the source of tens of thousands of court claims in the face of arbitration requirements, according to an industry interest group formed to fight the PAGA arbitration ban.
This morning’s decision is available on the Supreme Court’s website here.
The dispute traces to the controversial California Supreme Court case of Iskanian v. CLS Transp. Los Angeles LLC, 327 P.3d 129 (Cal. 2014) (available at https://stanford.io/3ILcTY5), where the state’s top Court held “that an arbitration agreement requiring an employee as a condition of employment to give up the right to bring representative PAGA actions in any forum is contrary to public policy.”
Today’s majority opinion by Justice Samuel A. Alito Jr. does not fully invalidate PAGA, and takes issue with arguments on both sides. In fact, it leaves wiggle room for the California courts and legislature to tinker with PAGA to provide relief for what it terms “non-individual” claims that the original plaintiff no longer has standing to make under the decision.
But it strikes the Iskanian reasoning, and criticizes the PAGA statute’s orientation, noting that it isn’t clear on individual’s claims as opposed to representative actions. Alito explains that representative actions under the law are not only those of the “individual claims” of employees who seeks to file suit for workplace claims under the state’s Labor Code, but also representative PAGA claims predicated on code violations “sustained by other employees.” The latter, under Iskanian, may not be subject to mandatory arbitration.
That didn’t sit well with the majority opinion, which contrasts PAGA’s single suit involving many claims but solely by an individual on behalf of the California Labor & Workforce Development Agency, as opposed to class-action cases which may involve many claims but also on behalf of many absent plaintiffs who are certified as a class.
The bottom line is that the representative aspect of PAGA as it applies to arbitration was stricken in today’s Court decision, an 8-1 decision with two concurring opinions. There was a dissent by Justice Clarence Thomas, who maintained his longstanding view–a short dissenting opinion that he has issued on at least seven other occasions–that the Federal Arbitration Act doesn’t apply in state courts.
The results already are seen as a relief by California business interests, with the Iskanian arbitration bar eliminated. Los Angeles-based Anthony J. Oncidi, a partner and co-chair, of Proskauer Rose’s Labor and Employment Department, writes in an email,
Employers all over California are rejoicing today with the news that this peculiar PAGA exemption from arbitration is finally gone. Employers should run, not walk, to take advantage of this significant new development by immediately reviewing and, if necessary, amending their arbitration agreements to encompass PAGA claims. And as for those employers who, for whatever reason, have not yet availed themselves of an updated arbitration program, this is just the most recent reason to consider doing so.
Another management-side attorney, Christopher C. Murray, an Indianapolis shareholder in Ogletree, Deakins, Nash, Smoak & Stewart, P.C., writes,
Today’s decision is, for now, a victory for employers with well-crafted arbitration agreements containing class action and representative action waivers and severability clauses. However, it’s a nuanced decision that leaves open a number of issues. One is whether the California legislature can amend PAGA to give a plaintiff standing to bring a representative PAGA action even if the plaintiff cannot pursue an individual claim in the same action. In short, it’s unlikely that today’s opinion will be the final word on representative PAGA actions and arbitration.
[Murray co-chairs the Employment Disputes Committee at the International Institute for Conflict Prevention and Resolution-CPR, which provides this blog.]
“While today’s decision is disappointing and adds new limits, key aspects of PAGA remain in effect and the law of our state,” noted California State Attorney General Rob Bonta in a statement this afternoon. He added: “Workers can continue to bring claims on behalf of the State of California to protect themselves and, in many instances, their colleagues all across California. At the California Department of Justice, we will continue to stand with workers to fight for their rights everywhere.” (The full press release is available here.)
Today’s decision may serve to derail efforts to enact PAGA-like statutes in other states. Had the law stood in its entirety and its arbitration end-run survived, labor likely would have reinvigorated pushes in blue states to add similar laws. See, e.g., Dan Walters, “The Fight Over the Private Attorneys General Act,” Orange County [Calif.] Register (April 5) (available at https://bit.ly/3MOO7s5).
The PAGA law, according to employers, negated the effects of the U.S. Supreme Court cases of Epic Systems Corp. v. Lewis, 138 S.Ct. 1612 (2018) (available at http://bit.ly/2Y66dwK), which authorized mandatory predispute arbitration, and AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011) (available at http://bit.ly/2VcI4mi), which permits mandatory arbitration backed with class waivers in consumer contracts.
The Court heard the oral arguments on March 30, the last of four arbitration cases argued in nine days at the nation’s top court. See Russ Bleemer, “Adding a Claim, and Avoiding Arbitration: The Supreme Court Reviews California’s Private Attorneys General Act,” CPR Speaks blog (March 30) (available at https://bit.ly/3NWMFoQ).
It’s also the last of the five arbitration cases the nation’s top Court has accepted and decided in its 2021-2022 term, following closely on Monday’s decision in consolidated international arbitration cases focused on cross-border discovery issues. Links to reports on all of the U.S. Supreme Court decisions, as well as case previews and in-depth reviews of the arguments, can be found on the CPR Speaks blog here.
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Under the PAGA law, employees may bring forth disputes on behalf of similarly situated workers who also allege employment violations. Angie Moriana, who worked as a sales representative for Viking River Cruises in 2016 and 2017, filed suit against the company in a representative action for alleged violations of California labor laws. Moriana alleged that Viking River Cruises violated California wage and hour laws. She had signed a pre-dispute agreement agreeing to file her claims in arbitration individually, and waiving her ability to bring a class action. As a result, Viking River Cruises sought arbitration.
In Iskanian in 2014, the California Supreme Court ruled that though PAGA suits are filed on behalf of the state, employees cannot forgo their ability to file these claims individually. The California Supreme Court decided Iskanian before the U.S. Supreme Court–showing its broad deference to the Federal Arbitration Act’s recognition of the enforcement of arbitration agreements–decided the Epic Systems mandatory employment arbitration case.
This Iskanian mandatory arbitration bar reasoned that PAGA plaintiffs represent the state as private attorneys general even though the state was not a party to the arbitration agreement. In Epic Systems v. Lewis, the U.S. Supreme Court held that mandatory arbitration agreements do not violate employees’ rights under Section 7 of the National Labor Relations Act.
PAGA supporters argued that the law supplements the California Labor and Workforce Development Agency’s limited enforcement capability by allowing employees to enforce the state labor laws. Employers contended that the inability to arbitrate workplace disputes cost money and jobs.
During the March 30 Supreme Court oral arguments (full CPR Speaks coverage at the link above), the court’s liberal justices were more animated, and appeared to back the California Supreme Court prohibiting mandatory arbitration of PAGA claims. Justices Sonia Sotomayor and Elena Kagan questioned why the state’s choice to enforce its workplace regulations should be overridden by the FAA, a statute now nearly a century old.
The Court conservatives did not share the same doubts. Contrary to Moriana’s assertion that requiring arbitration essentially waives a PAGA claim, Chief Justice John G. Roberts Jr. stated that a PAGA plaintiff does have a right to pursue the substantive claim, although through a different means. Today’s opinion author, Justice Alito, appeared to imply that the court’s Epic Systems decision supported finding arbitration agreements enforceable in the face of PAGA allegations.
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Alito continued that line of reasoning in this morning’s decision, invoking the Court’s arbitration precedents, and discussing the expected characteristics of arbitration as a bilateral process, not a representative or class proceeding.
Alito criticized the California statute’s structure—”a PAGA action asserting multiple code violations affecting a range of different employees does not constitute ‘a single claim’ in even the broadest possible sense”—and noted that the law prohibited dividing the matter into the constituent individual and representative claims.
The opinion focused on the definitions of representative claims in bilateral arbitration. It states that while precedents don’t hold “that the FAA allows parties to contract out of anything that might amplify defense risks,” the practice makes “it . . . impossible to decide representative claims in an arbitration that is ‘bilateral’ in every dimension.” Alito wrote, “[O]ur cases hold that States cannot coerce individuals into forgoing arbitration by taking the individualized and informal procedures characteristic of traditional arbitration off the table.”
The federal-state law conflict, however, was elsewhere. The majority opinion–in a section where Chief Justice Roberts, and Justices Brett Kavanaugh and Amy Coney Barrett, did not join with the majority—finds a conflict between PAGA and the FAA in PAGA’s “built-in mechanism of claim joinder.” The Court says that Iskanian’s mandate of joinder of “aggrieved” employees’ “personally suffered” Labor Code violations “as a basis to join to the action any claims that could have been raised by the State in an enforcement proceeding” coerced parties’ PAGA claims out of arbitration.
The majority invoked its historic view of arbitration, holding that “state law cannot condition the enforceability of an arbitration agreement on the availability of a procedural mechanism that would permit a party to expand the scope of the arbitration by introducing claims that the parties did not jointly agree to arbitrate.”
Alito adds that PAGA allowed parties to avoid their agreement to arbitrate their individual claims after the fact and demand court or arbitration that exceeds the scope of the original agreement: “The only way for parties to agree to arbitrate one of an employee’s PAGA claims is to also ‘agree’ to arbitrate all other PAGA claims in the same arbitral proceeding.” [Emphasis is in the opinion.]
That aspect of the California law did not survive. “We hold that the FAA preempts the rule of Iskanian insofar as it precludes division of PAGA actions into individual and non-individual claims through an agreement to arbitrate,” Alito wrote. The agreement’s severability clause, the opinion concludes, allows Viking River Cruises to compel individual arbitration of respondent Moriana’s claims.
The opinion also dismisses Moriana’s non-individual claims, holding that, with the dismissal, Moriana no longer had standing, leaving those claims–still valid in the majority’s view–in limbo. Instead of court or arbitration, however, the opinion targets the law. Alito concludes, “PAGA provides no mechanism to enable a court to adjudicate non-individual PAGA claims once an individual claim has been committed to a separate proceeding.”
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In her concurrence, Justice Sotomayor picks up on the majority’s closing point as well as followed from her oral argument concerns about whether the FAA could eliminate claims chosen by the California Legislature for its constituents via PAGA.
First, she asserts that the majority “makes clear that California is not powerless to address its sovereign concern that it cannot adequately enforce its Labor Code without assistance from private attorneys general.”
But then, returning to Alito’s closing point that the nonindividual claims have no outlet due to Moriana’s apparent lack of standing under California law, Sotomayor agrees, noting that there are options:
Of course, if this Court’s understanding of state law is wrong, California courts, in an appropriate case, will have the last word. Alternatively, if this Court’s understanding is right, the California Legislature is free to modify the scope of statutory standing under PAGA within state and federal constitutional limits.
Viking River Cruises, says Washington, D.C., arbitrator Mark Kantor, who closely follows the Court’s arbitration jurisprudence and previewed the case for CPR Speaks here, “leaves considerable scope for the California legislature to rework PAGA to reestablish a representative action that could survive FAA preemption and make a waiver of PAGA unenforceable, although possibly enforceable in an arbitral forum if the relevant employment agreements calls for arbitration.”
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Justice Amy Coney Barrett’s additional opinion is brief but goes further–concurring in the judgment, at the same time stepping away from much of the majority’s discussion of representative and individual actions.
She concurs with Section III of the opinion, the FAA-PAGA conflict because of the California law’s mandatory joinder provisions that would bring representative claims to arbitration. Joined by Chief Justice Roberts and Justice Kavanaugh, Barrett writes that she agrees “that reversal is required under our precedent because PAGA’s procedure is akin to other aggregation devices that cannot be imposed on a party to an arbitration agreement,” citing four seminal Supreme Court cases including Epic Systems and AT&T Mobility (see above).
But her one-paragraph concurrence concludes, and could add fuel to moves by the California Legislature to reform PAGA in light of today’s decision:
I would say nothing more than that. The discussion in Parts II and IV of the Court’s opinion is unnecessary to the result, and much of it addresses disputed state-law questions as well as arguments not pressed or passed upon in this case.*
That asterisk is to a footnote, in which Justice Barrett adds, “The same is true of Part I,” which described the PAGA, Iskanian, and case histories.
Chief Justice Roberts dissented from the footnote, and joined in the Alito majority opinion for Parts 1 and III.
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Sodhi, a former CPR intern, last month received his LLM at the Straus Institute for Dispute Resolution, at Malibu, Calif.’s Pepperdine University Caruso School of Law. Bleemer edits Alternatives to the High Cost of Litigation for CPR.
More on Section 1782: Why the U.S. Supreme Court Says the Law Doesn’t Permit Discovery Requests from International Arbitrations
By Tamia Sutherland & Russ Bleemer
Here is a deeper dive into today’s U.S. Supreme Court consolidated decision in ZF Automotive US Inc. v. Luxshare Ltd., No. 21-401, which was consolidated with and covers AlixPartners LLP v. Fund for Protection of Investor Rights in Foreign States, No. 21-518. Does the new decision, which restricts discovery under a law aiding foreign governmental entities in U.S. courts, also limit discovery under the Federal Arbitration Act?
Our post covering the opinion from this morning can be found on CPR Speaks here.
In today’s unanimous 9-0 opinion, available here, the Court held that the use of 28 U.S.C. § 1782 for discovery in international proceedings was limited. “Only a governmental or intergovernmental adjudicative body constitutes a ‘foreign or international tribunal’ under 28 U. S. C. §1782,” wrote Justice Amy Coney Barrett in her first arbitration decision since ascending to the bench in 2020, “and the bodies at issue in these cases do not qualify.”
The statute, as the opinion notes, “permits district courts to order testimony or the production of evidence ‘for use in a proceeding in a foreign or international tribunal.’”
Specifically, Section 1782 states:
The district court of the district in which a person resides or is found may order him to give his testimony or statement or to produce a document or other thing for use in a proceeding in a foreign or international tribunal, including criminal investigations conducted before formal accusation.
Justice Barrett focused in the opinion on the phrase “foreign or international tribunal,” citing Black’s Law Dictionary and the Court’s only previous Sec. 1782 holding, Intel Corp. v. Advanced Micro Devices Inc., 542 U. S. 241 (2004) (available at https://bit.ly/3xKIMO5), which permitted discovery to a foreign tribunal but didn’t decide the arbitration-application issue. She parses the definitions individually of “foreign,” “international,” and “tribunal.”
Citing the U.S. government’s brief, which sought a limited use of the statute that didn’t include arbitration, Barrett writes,
“Tribunal” is a word with potential governmental or sovereign connotations, so “foreign tribunal” more naturally refers to a tribunal belonging to a foreign nation than to a tribunal that is simply located in a foreign nation. And for a tribunal to belong to a foreign nation, the tribunal must possess sovereign authority conferred by that nation.”
John B. Pinney, counsel to Cincinnati’s Graydon Head & Ritchey–who is counsel of record on an AlixPartners amicus brief urging the Court to accept the case on behalf of CPR, publisher of this blog (details here)–says that the government’s intervention in the case was pivotal. He cites the government brief and, in particular, Assistant Solicitor General Edwin Kneedler’s participation in the March 23 Supreme Court hearing.
“Between the lines,” notes Pinney in an email, “Kneedler’s argument on behalf of the United States did change the momentum of the proponents’ arguments as well as bolstering the opponents’ arguments. . . . Justice [Stephen G.] Breyer, whose early questions seemed to put him in the proponent’s camp, appeared to move toward the opponents’ position during Kneedler’s argument when he made a comment that the well-heeled users of international arbitration could petition Congress if they wanted authorization for federal court judicial assistance. In other words: the view that the operative phrase, ‘foreign or international tribunal,’ in Sec. 1782 ought not be expansively interpreted and that, as a result, it should be up to Congress to be clear if it truly wanted federal courts to have jurisdiction to provide discovery assistance for international arbitral tribunals.”
The Supreme Court opinion’s section on the meaning of the statutory wording concludes by excluding private matters, stating,
“[F]oreign tribunal” and “international tribunal” complement one another; the former is a tribunal imbued with governmental authority by one nation, and the latter is a tribunal imbued with governmental authority by multiple nations.
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The opinion then compares 28 U.S.C. 1782 discovery to the Federal Arbitration Act. It notes that limiting the law’s use to “only bodies exercising governmental authority is consistent with Congress’ charge to the Commission,” referring to the Commission on International Rules of Judicial Procedure, which studied U.S. judicial assistance to foreign countries, and recommended improvements, including the law.
Barrett discusses the effects of adopting a broader reading, and, rejecting the plea, notes:
[T]he animating purpose of §1782 is comity: Permitting federal courts to assist foreign and international governmental bodies promotes respect for foreign governments and encourages reciprocal assistance. It is difficult to see how enlisting district courts to help private bodies would serve that end. Such a broad reading of §1782 would open district court doors to any interested person seeking assistance for proceedings before any private adjudicative body—a category broad enough to include everything from a commercial arbitration panel to a university’s student disciplinary tribunal. [The opinion cites petitioner ZF Automotive’s brief.]
An extension to private bodies of Section 1782 would create “significant tension with the FAA” because the discovery allowed under Section 1782 is broader, Barrett explains.
But in discussing the contrast, the passage that followed also appears to refine the FAA’s use, and is sure to raise questions about the limits among veteran practitioners:
Among other differences, the FAA permits only the arbitration panel to request discovery, see 9 U. S. C. §7, while district courts can entertain §1782 requests from foreign or international tribunals or any “interested person,” 28 U. S. C. §1782(a). In addition, prearbitration discovery is off the table under the FAA but broadly available under §1782. See Intel, 542 U. S., at 259 (holding that discovery is available for use in proceedings “within reasonable contemplation”).
“This wouldn’t be the first time the Court made arbitration law via dicta,” notes Fordham University School of Law adjunct George H. Friedman, a former longtime senior vice president of dispute resolution at FINRA in an email, adding, “Manifest disregard” [which had been used in addition to FAA Sec. 10 to overturn awards] was announced via dicta in Wilko v. Swan back in 1953.” For more on the Court’s FAA gloss, see George H. Friedman, “SCOTUS Decides ZF Automotive: Yet Another Unanimous Decision, This One Holding that Section 1782 Discovery in Foreign Arbitrations Applies Only to Governmental Tribunals,” Securities Arbitration Alert (June 13) (available here).
Barrett concludes the Court’s Section 1782 definition by noting,
§1782 requires a “foreign or international tribunal” to be governmental or intergovernmental. Thus, a “foreign tribunal” is one that exercises governmental authority conferred by a single nation, and an “international tribunal” is one that exercises governmental authority conferred by two or more nations. Private adjudicatory bodies do not fall within §1782.
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In looking at the facts in the two arbitration cases on appeal to the Supreme Court, the opinion analyzed whether the “adjudicative bodies” were “governmental or intergovernmental,” concluding that the matters were private arbitration, and not subject to Section 1782 discovery.
It was an easy call on the ZF Automotive case:
[P]rivate entities do not become governmental because laws govern them and courts enforce their contracts—that would erase any distinction between private and governmental adjudicative bodies. [Respondent] Luxshare’s implausibly broad definition of a governmental adjudicative body is nothing but an attempted end run around §1782’s limit.
The opinion quickly notes, however, that the AlixPartners case involving the Lithuanian government is harder. It features a government on one side of a case where the arbitration option is contained in an international treaty rather than a private contract, making the case appear to be an intergovernmental dispute under Section 1782.
“Yet neither Lithuania’s presence nor the treaty’s existence is dispositive, because Russia and Lithuania are free to structure investor-state dispute resolution as they see fit,” the opinion states.
Instead, wrote Barrett, “What matters is the substance of their agreement: Did these two nations intend to confer governmental authority on an ad hoc panel formed pursuant to the treaty?”
The Supreme Court analyzed the parties’ contractual arbitration options, which included using court-related processes, as well as Arbitration Institute of the Stockholm Chamber of Commerce and the International Chamber of Commerce’s Court of Arbitration.
But the parties chose “an ad hoc arbitration in accordance with Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL).”
That, wrote Justice Barrett, “by contrast, is not a pre-existing body, but one formed for the purpose of adjudicating investor-state disputes. And nothing in the treaty reflects Russia and Lithuania’s intent that an ad hoc panel exercise governmental authority. For instance, the treaty does not itself create the panel; instead, it simply references the set of rules that govern the panel’s formation and procedure if an investor chooses that forum. In addition, the ad hoc panel “functions independently” of and is not affiliated with either Lithuania or Russia.”
The opinion adds, “So inclusion in the treaty does not, as the [respondent] Fund suggests, automatically render ad hoc arbitration governmental.” Still, after its focus on the ad hoc nature of the investor-state bilateral investment treaty dispute resolution process, the opinion notes that in the future, sovereign parties may be able to “imbue an ad hoc arbitration with official authority.”
In reversing the lower court decisions in both consolidated cases, Justice Barrett lays out the new rule of law on overseas discovery under 28 U.S. 1782 succinctly in her conclusion:
In sum, only a governmental or intergovernmental adjudicative body constitutes a “foreign or international tribunal” under §1782. Such bodies are those that exercise governmental authority conferred by one nation or multiple nations. Neither the private commercial arbitral panel in the first case nor the ad hoc arbitration panel in the second case qualifies.
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Sutherland, a former year-long 2021-2022 CPR intern, will be a third-year law student at the Howard University School of Law, in Washington, D.C. this fall. Bleemer edits Alternatives to the High Cost of Litigation for CPR and John Wiley & Sons.
Supreme Court Bars Discovery Assistance for Private Overseas Arbitration Panels Under U.S. Law
By Tamia Sutherland & Russ Bleemer
The U.S. Supreme Court this morning restricted the use of 28 U.S.C. § 1782 for discovery in international proceedings to “[o]nly a governmental or intergovernmental adjudicative” body, but not cross-border arbitration matters.
The unanimous 9-0 decision in consolidated cases by Justice Amy Coney Barrett—her first arbitration opinion as a member of the nation’s high Court—clarifies the use of the 1964 law, which recently split the federal circuit courts over its reach for arbitration parties.
“Interpreting §1782 to reach only bodies exercising governmental authority is consistent with Congress’ charge to the Commission,” wrote Barrett–referring to the 1960’s Commission on International Rules of Judicial Procedure, to improve U.S. laws reaching overseas–in today’s decision in ZF Automotive US Inc. v. Luxshare Ltd., No. 21-401, which was consolidated with and covers AlixPartners LLP v. The Fund for Protection of Investor Rights in Foreign States, No. 21-518.
The opinion can be found here.
The issue was whether 28 U.S.C. § 1782 can be invoked in international arbitrations to obtain U.S.-style discovery for evidence. This inquiry looked at whether the statutory language—“foreign or international tribunal”—extends to arbitration panels.
The opinion had little problem removing arbitration discovery requests from a private arbitration tribunal in ZF Automotive, where a federal district court permitted discovery under the statute in the U.S. for parties in the court’s jurisdiction. The Sixth U.S. Circuit Court of Appeals denied a ZF Automotive request to stay the order.
Today’s opinion, however, states that the legislative history behind the statute, as well as a comparison to the domestic-focused Federal Arbitration Act, which allows far narrower discovery than Section 1782, puts the law’s focus on discovery for governmental bodies, not private arbitration tribunals.
The Court had more difficulty with the AlixPartners case, which involved the government of Lithuania. But the Barrett opinion says that the parties’ actions under a bilateral investment treaty are the key here–the parties were acting more like private parties than governmental entities in setting up an ad hoc ADR process.
“An ad hoc arbitration panel, by contrast, is not a pre-existing body, but one formed for the purpose of adjudicating investor-state disputes,” wrote Barrett, “And nothing in the treaty reflects Russia and Lithuania’s intent that an ad hoc panel exercise governmental authority.”
AlixPartners focused on investor-state arbitration, in which one of the parties is the Lithuanian government. In AlixPartners, the respondent is a Russian entity representing investors pursuing claims before an ad hoc UNCITRAL-rules arbitral tribunal against Lithuania for the investors’ financial losses resulting from the insolvency of a Lithuanian bank. The Second U.S. Circuit Court of Appeals permitted discovery, finding that the ad hoc panel qualified under Section 1782 as a “foreign or international” tribunal rather than a private arbitration matter.
The Barrett opinion notes that the inclusion of arbitration in the BIT did not automatically make the process a governmental proceeding meriting the use of Section 1782. “Instead,” wrote Barrett, “it reflects the countries’ choice to offer investors the potentially appealing option of bringing their disputes to a private arbitration panel that operates like commercial arbitration panels do.”
[The publisher of this blog, CPR, urged the Court in an amicus brief to hear the AlixPartners case last year, without taking a merits position on the case. Details are available here.]
In ZF Automotive, a private commercial contract with ZF Automotive’s German parent required that disputes be arbitrated before the German Arbitration Institute, an arbitration provider. The ZF Automotive case, however, was brought in Detroit before the commencement of the Germany private international arbitration.
The U.S. District Court allowed the requested discovery. On appeal to the Sixth Circuit, ZF Automotive, in an unusual move, petitioned for certiorari before judgment to bypass waiting for the Sixth Circuit to decide its appeal. The Sixth Circuit, as noted, declined to stay the lower court’s order. Respondent Luxshare had requested and was granted discovery for the arbitration, in which it alleged fraud against ZF Automotive, under Section 1782. The Supreme Court granted certiorari on Dec. 10, and reversed the lower court decision today.
During a two-week, four-argument deep dive into arbitration law and practice in March (see this CPR Speaks link for previews, argument summaries, and reports on the decisions issued so far here), the Supreme Court heard these Sec. 1782 consolidated arguments as well as an oral argument from the U.S. Solicitor General’s office.
Veteran Assistant Solicitor General Edwin Kneedler’s contention that the Court should be cautious in accepting respondents’ arguments because any expansion of the scope of Section 1782’s reach should be addressed by Congress is reflected in the decision-making process, and the U.S. government’s brief is cited by Justice Barrett. Full details on the March 23 ZF Automotive oral arguments are available on this CPR Speaks blog here.
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Sutherland, a former year-long 2021-2022 CPR intern, will be a third-year law student at the Howard University School of Law, in Washington, D.C. this fall. Bleemer edits Alternatives to the High Cost of Litigation for CPR and John Wiley & Sons.
Supreme Court Backs Airport Worker, Applies Federal Arbitration Act Sec. 1 Exemption, and Sends Employment Dispute to Court
By Russ Bleemer and R. Daniel Knaap
The U.S. Supreme Court affirmed unanimously a Seventh U.S. Circuit Court of Appeals decision that a worker who loads or unloads goods from vehicles that engage in interstate commerce, but does not physically transport goods, is exempt from the Federal Arbitration Act as a “worker engaged in foreign or interstate commerce” under FAA Sec. 1, resolving a circuit split.
Southwest Airlines Co. v. Saxon, No. 21-309 (today’s decision is available here), involves a Fair Labor Standards Act suit brought by Illinois respondent Latrice Saxon against petitioner Southwest Airlines Co., her employer. Southwest was initially successful, moving to dismiss under the FAA despite Saxon’s argument that she, as a ramp supervisor, is exempt from the FAA under FAA Sec. 1. Case No, 19-cv-0403 (N.D. Ill. Oct. 8, 2019) (available here). The District Court had followed the Fifth U.S. Circuit Court of Appeals.
But the Seventh Circuit reversed, agreeing with Saxon that airplane cargo loaders are engaged in interstate commerce, even though she was located solely at Chicago Midway International Airport. Saxon, in the Seventh Circuit’s view, consequently is a transportation worker whose employment contract is exempt from the FAA. 993 F.3d 492 (7th Cir. 2021) (available here).
That view was affirmed today in the 8-0 opinion by Justice Clarence Thomas, erasing the circuit split with the Fifth Circuit. Justice Amy Coney Barrett didn’t participate.
Southwest “maintain[ed] that §1 ‘exempts classes of workers based on their conduct, not their employer’s,’ and the relevant class therefore includes only those airline employees who are actually engaged in interstate commerce in their day-to-day work,” according to today’s opinion.
The view that the localized worker was not engaged in interstate commerce and was therefore subject to arbitration was soundly rejected in today’s opinion. The case may have implications for app-based companies, like Amazon and Lyft, who strongly urged the Court to back Southwest in amicus briefs and reject the use of the FAA Sec. 1 carve-out exemption from arbitration for Saxon.
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The Court has usually been focused on getting cases into arbitration, and that hasn’t meant success for individuals fighting arbitration and seeking court processes.
Yet the three arbitration cases decided this term, all based in employment matters, backed the workers. In addition to affirming today’s employee victory in the Seventh Circuit, last month, the Court ruled in favor of a Taco Bell worker resisting her employer’s motion to compel arbitration in a unanimous opinion by Justice Elena Kagan. The Court found that a party need not show it was prejudiced by the moving party’s actions, but instead focuses on the employer’s actions to indicate whether the employer had waived its right to arbitration. Details on Morgan v. Sundance Inc., No. 21-328 (available at https://bit.ly/3NywXj5) are available on CPR Speaks here.
In the first of the 2021-2022 arbitration cases to be decided, the Court embraced a narrow construction of subject-matter jurisdiction in arbitration matters. The March 31 decision reversed a Fifth U.S. Circuit Court of Appeals opinion that a federal trial court had jurisdiction under Sections 9 and 10 of the Federal Arbitration Act to confirm and overturn arbitration awards. The decision in Badgerow v. Walters, No. 20-1143 (available here) potentially gave the employee, who filed suit over workplace discrimination, a new shot at overturning an arbitration award in state court.
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So in today’s case, the Court also backs a worker trying to avoid arbitration, following similarly the 2019 New Prime v. Oliveira case, where Justice Neil Gorsuch, in his first Supreme Court arbitration opinion, read FAA Sec. 1 to exempt an independent contractor/interstate truck driver from arbitration. The Court has limited the exemption from FAA application to transportation workers “engaged in” interstate commerce only in Circuit City Stores Inc. v. Adams, 532 U.S. 105 (2001) (available at https://bit.ly/2HhwYLu). But since then, the Court has only recognized an FAA Sec. 1 exemption for an independent contractor—a long-haul truck driver—in New Prime Inc. v. Oliveira, 139 S. Ct. 532 (2019) (available here).
Today’s decision revisits the limited scope of the FAA Sec. 1 exemption, and says it applies to the original plaintiff/respondent in the case.
First, Justice Thomas notes that Saxon, who is a Southwest ramp supervisor located solely at Chicago Midway, belongs to a class of workers who physically load and unload cargo on and off airplanes, using plain language and textual analysis to put the respondent/original plaintiff in the FAA Sec. 1 exemption. He finds that such workers are “as a practical matter, part of the interstate transportation of goods.” (Citation omitted.)
He used the Circuit City Sec. 1 analysis holding that the exemption applies only to transportation workers to establish the backing for Saxon’s position, finding, “Cargo loaders exhibit this central feature of a transportation worker.”
In analyzing the nature of interstate commerce in a key part of the opinion, Thomas notes, “any class of workers that loads or unloads cargo on or off airplanes bound for a different State or country is ‘engaged in foreign or interstate commerce’”—a point sure to refocus attorneys on the employment arbitration policies of app-based commerce. Amazon, for example, strongly urged the Court to reverse and back Southwest in an amicus brief, available here. (See the docket link above for more amicus briefs supporting both sides.) In a footnote, the Court notes that the issues most important to delivery companies weren’t needed to be addressed to decide Southwest Airlines.
Still, Thomas stopped short of including all airline industry employees as “transportation workers” for purposes of the FAA Sec. 1 exemption, which states, “nothing herein contained shall apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.”
In a painstaking dictionary analysis, Thomas notes that seamen and railroad workers are not industry-wide categories, and therefore don’t include the entire industry workforces. The implication is that a job-by-job, task-by-task analysis with the effects on interstate commerce, will be required for exempting workers from arbitration under FAA Sec. 1.
At the same time, the Thomas opinion rejects three Southwest points that sought to keep Saxon out of the exemption and require her to arbitrate under her employment agreement. Similar to the opinion’s rejection of the generalized interpretation of transportation workers that would include all airline workers by Saxon, the Court also states that the idea that the employee must ride on transportation in interstate commerce is too broad a reading of the FAA Sec. 1 language.
Next, Thomas notes that the goods that Saxon loaded only in Illinois were destined for interstate commerce, pointedly rejecting other Southwest-cited cases where the Court found localized activity was not in interstate commerce.
Finally, the opinion rejects a “statutory purpose” argument by Southwest, which claimed that the Seventh Circuit’s Sec. 1 interpretation hurts the pro-arbitration lean of the rest of the statute, particularly FAA Sec. 2, which “broadly requires courts to enforce arbitration agreements in any ‘contract evidencing a transaction involving commerce.'”
“Here,” countered Justice Thomas, “§1’s plain text suffices to show that airplane cargo loaders are exempt from the FAA’s scope, and we have no warrant to elevate vague invocations of statutory purpose over the words Congress chose.”
The opinion concludes, “Latrice Saxon frequently loads and unloads cargo on and off airplanes that travel in interstate commerce. She therefore belongs to a ‘class of workers engaged in foreign or interstate commerce’ to which §1’s exemption applies.”
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While the nation awaits decisions on abortion and gun rights, the decision comes in an unprecedented time for arbitration at the Court. While there are usually one or two arbitration decisions per term, the Court has heard six cases—two consolidated–on how arbitration works during the 2021-2022 term, four of which were argued in March alone. Highlights of the cases can be found on CPR Speaks, here, including with the preview and argument reports for the three cases already decided, including today’s case. Detailed oral argument coverage for Southwest Airlines v. Saxon can be found on CPR Speaks here; and the preview with background can be found here. The remaining two 2021-2022 Supreme Court arbitration cases are expected to be decided before the current term ends at the end of this month.
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Bleemer edits Alternatives to the High Cost of Litigation for CPR; Knaap, a law student at Columbia University Law School in New York, is a 2022 CPR Summer intern.
One Declined, One Pending: Scotus Asked to Enforce an Arbitration Award against a Sovereign and an Oil Company
By R. Daniel Knaap
The U.S. Supreme Court earlier this week declined to hear a case where Saudi Arabian landowners sought to enforce an arbitration award against the Saudi Arabian Oil Co., best known as Saudi Aramco.
The long-running matter, rooted in a nearly 90-year oil development land lease agreement, isn’t over. There’s a companion case from the same petitioners before the Court–against Chevron Corp., Saudi Aramco’s predecessor in the oil exploration and production deal–scheduled to be considered at a Supreme Court conference on June 16.
The Saudi Aramco case explores the limits of sovereign immunity in the face of a request to enforce an arbitral award against a government-tied entity. Now, at least in the Fifth Circuit’s view, the matter’s complex back story was sufficient to deny enforcement of the award against the state-owned enterprise in the absence of a 28 U.S.C. §1605 exception to foreign sovereign immunity.
In contrast, the Chevron case involves the issue of whether its predecessor’s arbitration agreement applies to the dispute.
The petitioners instituted two different enforcement proceedings regarding an $18 billion International Arbitration Center award against Saudi Aramco (Al-Qarqani v. Arab AMOCO, 2020 WL 6748031 (S.D. Tex., Nov. 17, 2020) and Chevron (Al-Qarqani v. Chevron Corp., 2019 WL 4729467 (N.D. Cal., Sept. 24, 2019).
Both the California and Texas U.S. District Courts refused to confirm the award. The Ninth Circuit affirmed the California district court, holding that the enforcement petition should be denied on the merits and not dismissed for failure to state a claim. Al-Qarqani v. Chevron Corp., 8 F.4th 1018 (9th Cir. 2021) (available at https://bit.ly/3zhYVvM). It further denied the petitions for rehearing and rehearing en banc, Al-Qarqani v. Chevron Corp., 2021 U.S. App. LEXIS 33976 (9th Cir. Cal., Nov. 16, 2021).
The case continues. A petition for certiorari in the nation’s top Court for Waleed Khalid Abu Al-Waleed Al Hood Al-Qarqani, et al. v. Chevron Corp., No. 21-1153, is pending and distributed for the June 16 conference.
In the Saudi Aramco case, the Fifth Circuit vacated the Southern District of Texas’s judgment, remanding with instructions that the case should be dismissed for lack of jurisdiction since Saudi Aramco qualified as a foreign state immune from suit under the Foreign Sovereign Immunities Act (“FSIA”), 28 U.S.C. §1603. Al-Waleed v. Saudi Arabian Oil Co., 19 F.4th 794 (5th Cir. 2021) (available at https://bit.ly/3zgvSZC).
The petition for certiorari in that case, Waleed Khalid Abu Al-Waleed Al Hood Al Qarqani, et al. v. Saudi Arabian Oil Co., No. 21-1335, was denied on May 31; Tuesday’s order declining cert is available here.
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According to the Supreme Court filings and lower court decisions, the case concerns a dispute between Saudi landowners and Saudi Aramco, which is Chevron’s successor in interest and fully owned by the Kingdom of Saudi Arabia. In 1933, an agreement was concluded between Chevron’s predecessor, Standard Oil Co. of California, and Saudi Arabia, which provided for rent payments to private landowners of oil-rich land, who were not a party to the agreement.
A deed of concession was concluded in 1949, which transferred the property from the landowners to Arabian American Oil Co., now Saudi Aramco. The petitioners, heirs of the landowners that were a party to the 1949 deed, claim that the land was leased, not sold, and that the 1933 agreement arbitration provision was imported into the 1949 deed. The petitioners initially sought back rent in Saudi Arabian courts. That proceeding took place in 2011, and a “Saudi Legal Committee” found that the 1949 deed was a sale, not a lease. 19 F.4th 794, 797.
The petitioners commenced arbitration proceedings at the International Arbitration Center in Egypt against Aramco and Chevron entities. Aramco rejected the arbitration and did not participate in the proceedings. The Chevron entities objected but nominated an arbitrator. Initially, the tribunal held that it lacked jurisdiction, but the proceedings were reopened by a panel with different members, resulting in an opinion in favor of the petitioners, awarding them $18 billion. Id. In the aftermath of the arbitration, an Egyptian court convicted two IAC administrators and three arbitrators of fraud, forgery, and other crimes relating to the second proceeding. Id.
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The Saudi Aramco petition presented the following questions: whether a foreign sovereign or instrumentality of a state that (1) is a signatory to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards–the New York Convention–may assert the FSIA as a defense to enforcement of a foreign arbitral award, (2) accepts and accedes the United Nations Conventions on Jurisdictional Immunities amounts to an express waiver of sovereign immunity under the New York Convention, and (3) fails to timely file a cross appeal from a U.S. district court order that denied the sovereign’s assertion of the FSIA as a defense amounts to waiver and bars a subsequent request for a jurisdictional dismissal on appeal that is based on the merits.
Since certiorari was denied, the Fifth Circuit’s judgment stands. It held that Saudi Aramco is a foreign state under the FSIA since it was “a distinct legal entity incorporated under Saudi law, a majority of whose shares are owned by the Kingdom of Saudi Arabia and whose principal place of business is in Saudi Arabia” and thus “presumptively immune from suit in the courts of the United States.” 19 F.4th 794, 800. This immunity was not waived by the exceptions set out in FSIA’s 28 U.S.C. §1605(a). It was not waived under §1605(a)(1) because “the dispute underlying the arbitral award at issue … is clearly outside its scope,” since neither Saudi Aramco, its predecessor, nor the petitioners were party to the 1933 agreement. Id.
The immunity was also not waived under §1605(a)(2) by Saudi Aramco conducting business in the United States since the arbitration took place in Egypt and “did not cause a ‘direct effect’ in the United States.” Id., at 801.
The expropriation exception provided in §1605(a)(3) also does not apply because the action is to enforce an arbitral award, “not litigation of a property dispute involving international law.” Id.
Finally, immunity also was not waived under §1605(a)(6)’s arbitration agreement exception since neither Saudi Aramco, its predecessor, nor the petitioners were party to the 1933 agreement, and the 1949 deed did not mention arbitration nor did it refer to the 1933 agreement’s arbitration clause. Therefore, the Fifth Circuit concluded, the action should be dismissed for lack of jurisdiction instead of denying the petition for enforcement. Id. at 801-2.
The cert denial allowing the Fifth Circuit decision to stand in turn appears to provide some answers to the petitioner’s questions presented.
First, a foreign sovereign or instrumentality of a state that is a signatory to the New York Convention may assert the FSIA as a defense to enforcement of a foreign arbitral award. Second, a foreign sovereign or instrumentality of a state that accepts and accedes the United Nations Convention on Jurisdictional Immunities does not amount to an express waiver of sovereign immunity under the New York Convention. The third question, however, was not explicitly addressed since the appeal was found to be timely.
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The author, a law student at Columbia University Law School in New York, is a 2022 CPR Summer intern.
The EEOC Set to Release Two Reports Comparing Online and In-Person Mediation
By Mylene Chan
The U.S. Equal Employment Opportunity Commission, a federal agency which enforces federal workplace anti-discrimination laws, will release Tuesday two reports on the transition to video mediation from traditional in-person sessions during the course of the pandemic.
The reports’ striking positive view of online ADR points to continued use, post-pandemic.
The EEOC had conducted about 10,000 mediations annually in the past decade–in-person until mid-March 2022, when it transitioned to online dispute resolution due to the Covid-19 outbreak. See “EEOC Mediation Statistics FY 1999 through FY 2020,” at https://bit.ly/38VirmT.
In September 2020, the EEOC commissioned researcher E. Patrick McDermott, a professor of management and legal studies of Franklin P. Perdue School of Business at Salisbury University in Salisbury, Md., with Ruth Obar, a program evaluation scholar based in Manila, Philippines, to conduct an online dispute resolution survey to measure the performance of online mediation against in-person processes.
This survey used the same performance measures employed in previous surveys by the EEOC since 2000 annually to measure participant satisfaction with in-person mediation.
“Our two independent studies of the mediator and participants’ experience in online mediation, which includes party representatives, leave no doubt that we are seeing the rise of a new and improved model of workplace discrimination mediation,” said McDermott. He added, “Without a playbook, the EEOC mediation program National Coordinator, Stephen Ichniowski, the District Office ADR Program Managers, and the many program mediators transitioned successfully from in-person to online mediation. This program’s success and the data should be considered in future dispute resolution design in the courts, administrative agencies, and private models.”
The new releases covering the two studies, “Equal Employment Opportunity Commission Mediators’ Perception of Remote Mediation and Comparisons to In-Person Mediation” and “The Equal Employment Opportunity Commission Mediation Participants Experience in Online Mediation and Comparison to In-Person Mediation,” are expected to be released here Tuesday morning. [UPDATE: The studies were released Wednesday, June 1, and can be accessed directly here.] They indicate that most of the survey participants prefer online mediation over in-person mediation, and that they believe procedural fairness, distributive justice, and access to justice are greater in online mediation.
Here are the key findings:
- 92% of charging parties and 98% of employers would conduct EEOC online mediation again.
- 86% of charging parties and 94% of employers believe that EEOC’s online mediation procedures are fair.
- 82% of charging parties and 91% of employers regard the overall online mediation as fair.
- 60% of charging parties and 72% of employers are satisfied with the outcome of the online mediation, a rate higher than the same measure taken for in-person mediation previously.
- Nearly 70% of the participants prefer online mediation to in-person mediation.
- Online mediation affords significantly greater access to justice because employers are more willing to participate in a mediation done online.
- Employers report higher satisfaction across procedural and due process measures in online mediation.
The EEOC’s results echo and confirm the views of many practitioners who find Zoom mediation to be a successful model.
John M. Noble, a Greensburg, Pa., mediator who reports he had 267 2021 mediations, shared his positive experience with Zoom:
Having conducted 564 remote sessions in the first 26 months of this Covid era, the mid-2020 notion that in-person ADR is still “better” than Zoom is now near non-existent. The non-travel benefits alone have proven life-altering: when the session is over, you are home or in the office; no more hotels or trains, planes and automobiles; no weather/dangerous highway issues; plaintiffs are expressly more comfortable in their own homes; defense representatives markedly increase efficiencies–at no added costs–participating from their home or office work-stations, given the routine in-person session down-time.
The participants and shared documents are “closer” to me on screen than in-person and I hear better with the head-set. Remarkably, while five of the eight insisted-upon in-person sessions I reluctantly conducted in 2020-22 did not settle (two of the cases saw no offers!), I have seen record numbers of settlement dollars accepted remotely-over $450 million and counting. Frankly, my location has become irrelevant as I now Zoom with people from any time zone and I very thankfully no longer travel 12-20 hours a week. Beyond sold: . . . remote ADR is here to stay!
Colin Rule, chief executive officer of Resourceful Internet Solutions Inc., which owns mediate.com, commented,
Zoom has revolutionized the practice of mediation. Many mediators conducted their first online mediation via Zoom during the pandemic, and now they won’t go back. Video conference mediation has become the new normal, with face-to-face processes the exception–a complete reversal from pre-2019.
Zoom-based mediation helps parties be at their best; it allows for more flexible mediation processes (with more breaks), and it’s much greener (with fewer car miles and airline flights). Parties prefer Zoom for mediation because of the cost and convenience, and studies are showing mediation over Zoom is equally as effective as face-to-face mediations. Zoom is constantly improving their platform, and video and audio quality are certain to get even better over the coming years. Zoom may be the gateway to more technological innovations for mediation in the near future.
Other mediators see advantages and disadvantages of online mediation and will use it if needed . . . but do not prefer it. See, e.g., Robert A. Creo, “The Post Pandemic Compromise: Hybrid Mediation!”, 39 Alternatives to the High Cost of Litigation 111 (July/August 2021) (available at https://bit.ly/3wQaxmZ).
The two EEOC reports confirm that online mediation is widely accepted by mediators and participants. Online mediation, which was initially deemed as a temporary fix, is likely to continue to become mainstream at the EEOC even after the pandemic recedes.
The author is 2022 Founders’ Fellow of Mediators Beyond Borders International. She is a former CPR intern, and has written for and contributed to this CPR Speaks blog and CPR’s newsletter, Alternatives to the High Cost of Litigation.