International Arbitration Is Back at the Supreme Court with Today’s Cert Grant on Two Section 1782 Cases

By John Pinney

The U.S. Supreme Court this afternoon granted certiorari on two Section 1782 cases, ZF Automotive US Inc. v. Luxshare Ltd., No. 21-401, and AlixPartners LLP v. The Fund for Protection of Investor Rights in Foreign States, No. 21-518.

By accepting these cases, the nation’s top Court has again agreed to decide whether 28 U.S.C. § 1782 can be invoked by parties in international arbitrations to obtain U.S.-style discovery to obtain evidence for use in such proceedings.

It is the second time this year that the Court has taken on the issue. Today’s cert grants follow the voluntary dismissal in September just six days before the scheduled argument for Servotronics, Inc. v. Rolls-Royce, PLC, No. 20-794, a case that the court had agreed to hear on the same issue last March.  For details on the dismissal, 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).

As it had done in Servotronics, the International Institute for Conflict Prevention and Resolution, which publishes CPR Speaks, filed an amicus brief in support of the AlixPartners certiorari petition. [Editor’s note: John Pinney, author of this CPR Speaks blog post, also is counsel of record on both amicus briefs on CPR’s behalf. See the credit line for links below.]

In its order granting cert on the two cases, the Court formally granted CPR’s leave to file an amicus brief in AlixPartners. The Court consolidated the two cases and allotted an hour for an oral argument. The order is available here.  The case has not yet been scheduled; schedules for winter and spring 2022 argument dates in the current 2021-2022 term have yet to be released, and the case could be added before the Court’s year ends in June.

The specific issue before the Supreme Court is whether the critical phrase in § 1782, “foreign or international tribunal,” includes international arbitral tribunals. As readers who have been following the cases addressing § 1782 over the past two years know—see links to key CPR Speaks blog posts below–there is a circuit split regarding the applicability of § 1782 for private international arbitrations. The Second, Fifth and Seventh U.S. Circuit Courts of Appeals have held that an international arbitral tribunal is not a “tribunal” within the meaning of the statute, while the Fourth and Sixth Circuits have decided it is.

There was widespread disappointment in the international arbitration community when Servotronics was officially dismissed in late September after a party requested the dismissal shortly after an award was issued in the underlying London arbitration that mooted the § 1782 case before the Supreme Court.

The ZF Automotive case is virtually identical to Servotronics in that it involves a private international arbitration. It is noteworthy, however, that the ZF Automotive petition was brought before judgment out of the Sixth Circuit, one the two circuit courts allowing § 1782 discovery for a private international arbitral tribunal.

On the other hand, AlixPartners presents a significantly different issue than the Servotronics matter.

AlixPartners arises not from a private international arbitration but instead from an investment case brought under the Russian-Lithuanian bilateral investment treaty. The respondent Fund now before the Supreme Court is a Russian entity pursuing claims before an ad hoc UNCITRAL-rules arbitral tribunal against Lithuania for investors’ financial losses resulting from the insolvency of the Lithuanian bank.

The Fund brought its § 1782 request for discovery in New York against AlixPartners, a financial consulting firm that had advised the Lithuanian government regarding the bank’s insolvency. The case comes to the Supreme Court after the Second Circuit, applying criteria established in a recent case that denied discovery for a case before a private international arbitration tribunal–see In re Hanwei Guo for an Order to take Discovery for Use in a Foreign Proceeding Pursuant to 28 U.S.C. 1782, 965 F.3d 96 (2d Cir. 2020), as amended (July 9, 2020) (available at https://bit.ly/3IxxzUK)–allowed discovery for the investment case because of the degree of governmental involvement due to the investment treaty. 

For more on ZF Automotive, see Bryanna Rainwater, “The Law on Evidence for Foreign Arbitrations Returns to the Supreme Court,” CPR Speaks (Oct. 22, 202) (available here). For a CPR YouTube discussion of the cases and two other pending U.S. Supreme Court arbitration matters, see “The Latest #SCOTUS #Arbitration: Process ‘Preference’; Int’l #Discovery; Federal Courts’ Arb #Jurisdiction,” CPR Speaks (Nov. 23) (available here).

By taking both ZF Automotive and AlixPartners, the Supreme Court will now decide the scope of § 1782 for both private international and investment arbitrations.

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John Pinney is counsel to Graydon Head & Ritchey in Cincinnati. On CPR’s behalf, he acted as counsel of record in an amicus brief urging the U.S. Supreme Court to accept the AlixPartners case, but not taking a position on behalf of either party. Details on the brief can be found on CPR Speaks here. His AlixPartners brief on CPR’s behalf can be found at on the Supreme Court docket page linked at the top or directly at https://bit.ly/3pzZpHj. Earlier this year, he filed a similar friend-of-the-Court brief asking the Supreme Court to accept the Servotronics case, which was accepted and later dismissed ahead of a scheduled argument. Details on the dismissal can be found in the CPR Speaks Sept. 8 posting cited above, and here. He discusses the Servotronics brief in a CPR YouTube analysis here. His Servotronics brief on CPR’s behalf can be found on the Supreme Court docket page linked at the top of this post or directly at https://bit.ly/3Ez58U4.

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The Latest #SCOTUS #Arbitration: Process ‘Preference’; Int’l #Discovery; Federal Courts’ Arb #Jurisdiction

CPR presents on YouTube linked and embedded above a new discussion on the current U.S. Supreme Court hot arbitration topics.  

The discussion is moderated by Russ Bleemer, editor of Alternatives to the High Cost of Litigation (http://altnewsletter.com, and for CPR members at www.cpradr.org/news-publications/alternatives) (@altnewsletter)), who is joined by Angela Downes, Assistant Director of Experiential Education and Professor of Practice Law at the University of North Texas-Dallas College of Law; independent Dallas attorney-arbitrator Richard Faulkner, and arbitration advocate Philip J. Loree Jr., who heads the Loree Law Firm in New York (@PhilLoreeJr). 

Here are the matters discussed, and links on this CPR Speaks blog to details on the cases and potential cases along with resources including links to lower court opinions and briefs.

  1. Morgan v. Sundance Inc., No. 21-328, an employment case on the extent to which a federal court may defer to an arbitration agreement, which the nation’s top Court agreed to hear last week. For details, see Mark Kantor, “U.S. Supreme Court Adds an Arbitration Issue: Is Proof of Prejudice Needed to Defeat a Motion to Compel?” CPR Speaks (Nov. 15) (available here).
  2. The Court has scheduled two cases involving the reach of 28 U.S.C § 1782 for a Dec. 3 conference that will determine whether it should hear the matters or let lower court opinions stand.  The cases examine whether the statute, which authorizes “any interested person” in a proceeding before a “foreign or international tribunal” to ask for and receive discovery from a person in the United States, covers international arbitration tribunals. The cases, AlixPartners LLP v. The Fund for Protection of Investors’ Rights in Foreign States, No. 21-518, and ZF Automotive US Inc. v. Luxshare Ltd., No. 21-401, are discussed at Bryanna Rainwater, “The Law on Evidence for Foreign Arbitrations Returns to the Supreme Court,” CPR Speaks (Oct. 22, 202) (available here).  CPR has filed an amicus brief asking the Supreme Court to accept and decide the AlixPartners case; the NYC-based nonprofit which publishes this blog did not take a position in the case.  The details on the filing can be found at “CPR Asks Supreme Court to Consider Another Foreign Tribunal Evidence Case,” CPR Speaks (Nov. 12) (available here) (containing information and links to CPR’s previous amicus brief in Servotronics v. Rolls Royce PLC, No. 20-794, another Section 1782 case that the Supreme Court dismissed in September and removed from the Court’s October argument calendar).
  3. Badgerow v. Walters, No. 20-1143, an employment discrimination case that dives into the jurisdiction of federal courts under Federal Arbitration Act sections on enforcing and overturning arbitration awards.  The case was most recently discussed on CPR Speaks at Russ Bleemer, “Supreme Court Hears Badgerow, and Leans to Allowing Federal Courts to Broadly Decide on Arbitration Awards and Challenges,” CPR Speaks (Nov 2) (available here).

The video embedded above can be found on YouTube at https://www.youtube.com/watch?v=Sw8ps4vtTfs.

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CPR Files Amicus Brief Asking U.S. Supreme Court to Tackle Foreign Discovery for Arbitration

The International Institute for Conflict Prevention and Resolution has filed an amicus brief requesting that the U.S. Supreme Court grant certiorari to resolve a federal circuit court split on whether 28 U.S.C. § 1782 allows federal district courts to order discovery for private commercial arbitration abroad.

CPR did not take a position on the merits of the case.

Yesterday’s filing in Servotronics Inc. v. Rolls-Royce PLC, et al., No. 20-794, highlights the circuit split underlying the case.  Petitioner Servotronics presents the question,

Whether the discretion granted to district courts in 28 U.S.C. § 1782(a) to render assistance in gathering evidence for use in “a foreign or international tribunal” encompasses private commercial arbitral tribunals, as the U.S. Courts of Appeals for the 4th and 6th Circuits have held, or excludes such tribunals without expressing an exclusionary intent, as the U.S. Courts of Appeals for the 2nd, 5th and, in the case below, the 7th Circuit, have held.

CPR urged the Court to resolve this circuit court split, noting in the brief that “the question of whether United States district courts may entertain applications for judicial assistance in obtaining evidence for presentation in arbitral proceedings before international tribunals is one of great relevance to CPR and its constituents.”

The friend-of-the-Court brief states that the “current existence of opposite rules on whether district courts have jurisdiction to render assistance under Section 1782 in gathering evidence for international arbitral tribunals creates both the opportunity for blatant forum shopping and the likelihood of protracted litigation on the threshold jurisdictional question in each of the seven remaining regional circuits that have not decided the question.”

CPR also argues that the court should set the case for argument this term to avoid the likelihood that it will become moot prior to decision.

Section 1782 authorizes “any interested person” in a proceeding before a “foreign or international tribunal” to ask for and receive discovery from a person in the United States.  But the conflicting federal circuit cases differ on whether the statute’s definition of tribunals would cover arbitration matters. The Servotronics parties have decisions going both ways, one in the Fourth Circuit, and the second, the subject of the cert petition, in the Seventh Circuit.

CPR has created a web page for the brief at http://bit.ly/3nklaYp.

CPR Speaks has addressed the issues in this case as they arose.  John Pinney, counsel to Graydon in Cincinnati who prepared the amicus filing on CPR’s behalf, discusses the case in a video post here.  Updates on the circuit split as it developed in 2020’s second half are available here and here.

You can find the CPR amicus filing, as well as other filings in the case, on the Supreme Docket page, here. Law360 covered the filing here, available with a subscription.

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Supreme Court Argument Preview: Looking Ahead to Round 2 on Schein and Arbitrability

Can a contract clause delegating a case to an arbitrator be preempted and sent to a court by words that exempt the consideration of specific issues, like injunctions, from the arbitrator?

That’s the question the U.S. Supreme Court will hear discussed in the Tuesday, Dec. 8 arguments in Henry Schein Inc. v. Archer and White Sales Inc., No. 19-963 (Supreme Court case page is at https://bit.ly/2EvKPx3).  So far, it’s the only arbitration case the U.S. Supreme Court has agreed to hear in the 2021 term.

It’s the case’s second trip to the nation’s top Court in under two years.  In Henry Schein Inc. v. Archer and White Sales Inc., 139 S. Ct. 524 (Jan. 19, 2019) (available at https://bit.ly/338gdLT), the Court held that the “wholly groundless” exception to arbitrability is inconsistent with the Federal Arbitration Act and the Court’s precedent. But it declined to determine “whether the parties agreed to arbitrate arbitrability” as indicated by “clear and unmistakable evidence” in a unanimous opinion by Associate Justice Brett Kavanaugh.

On remand the Fifth Circuit found that a clause delegated the arbitration to the arbitrator via the incorporation of American Arbitration Association rules to that effect. But the Court didn’t compel arbitration.  It said that the way the clause was drafted, the carve out for injunctions still applied, and once again refused to enforce arbitration. 

Henry Schein asked the Court to hear the case between the two medical equipment supply companies a second time, contending that the delegation should have sent the question of arbitrability to the arbitrator, not a court.

On June 15, the Court agreed to hear the case again, this time on the issue of “[w]hether a provision in an arbitration agreement that exempts certain claims from arbitration negates an otherwise clear and unmistakable delegation of questions of arbitrability to an arbitrator.”

At the same time, the Court declined to accept Archer and White’s cross petition on two issues that could eventually be before the Court—possibly in a guest appearance as soon as Tuesday’s oral argument:

(1) Whether an arbitration agreement that identifies a set of arbitration rules to apply if there is arbitration clearly and unmistakably delegates to the arbitrator disputes about whether the parties agreed to arbitrate in the first place; and

(2) whether an arbitrator or a court decides whether a nonsignatory to an arbitration agreement can enforce the arbitration agreement through equitable estoppel.

For background on Tuesday’s argument, see Heather Cameron, “Decided, Granted, Denied: A Look At 2020’s Supreme Court Arbitration Cases,” 38 Alternatives to the High Cost of Litigation 118 (September 2020) (available at https://doi.org/10.1002/alt.21852); Russ Bleemer & Heather Cameron, “Supreme Court Returns Schein to Its Docket, With a Focus on Arbitrability,” CPR Speaks (June 15, 2020) (available at https://bit.ly/3d4HOPt); Philip J. Loree Jr., “Schein Returns: Scotus’s Arbitration Remand Is Now Back at the Court, CPR Speaks (Feb. 19, 2020) (available at http://bit.ly/3bQXQgl); Mark Kantor, “Henry Schein Redux – The Appeals Court Decides ‘The Placement of the Carve-Out is Dispositive,’” CPR Speaks (Aug. 15, 2019) (available at http://bit.ly/2IZ3MqQ).

Linked above, Alternatives editor Russ Bleemer is joined for a preview of the second Henry Schein Supreme Court arguments by Angela Downes, Professor of Practice and Assistant Director of Experiential Education, of the University of North Texas-Dallas College of Law in Dallas, and arbitrator-advocates Philip J. Loree Jr., of New York (see his Arbitration Law Forum blog and website at https://loreelawfirm.com/blog/), and Richard Faulkner, of Dallas (see his LinkedIn page at https://bit.ly/3qh5U13).

Loree and Faulkner worked on an amicus brief that has been filed in this case, and is discussed at length in the video.  It is posted on the Supreme Court’s website here.

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Tuesday’s SCOTUS Argument: Can Non-Signatories Compel Arbitration in the United States Under the New York Convention?

By Doo-Won ‘David’ Chung and Russ Bleemer

When a party files for arbitration under a contract but it is not a signatory to the contract, sparks can fly.

On Tuesday, the U.S. Supreme Court heard from both sides that non-parties can compel arbitration under the Federal Arbitration Act in oral arguments for this term’s sole arbitration case, GE Energy Power Conversion France SAS v. Outokumpu Stainless USA LLC, No. 18-1048.

But the arbitration falls under the international Convention on the Recognition and Enforcement of Foreign Arbitral Awards, best known as the New York Convention, adopted and implemented as the FAA’s Chapter 2 in the United States.

And on its surface, it appears the treatment may be different.  The Eleventh U.S. Circuit Court of Appeals rejected nonparty GE Energy’s motion to compel arbitration, focusing on the first of four treaty requirements for compelling arbitration— “there is an agreement in writing within the meaning of the Convention.” Outokumpu Stainless U.S. LLC v. Converteam SAS, 902 F.3d 1316, 1325 (11th Cir. 2018) (available at http://bit.ly/2E1eSc0).

The Supreme Court agreed to hear the case last year on whether the New York Convention allows a non-signatory to an arbitration agreement to compel arbitration based on the doctrine of equitable estoppel. See “The Friends Speak: Here’s What Scotus Will Decide in the GE Energy International Arbitration Case,” 38 Alternatives 2 (January 2020) (available at http://bit.ly/2v2pJ3Z).

The Court’s strong historical preference for arbitration appeared to be a tipoff that it took the case to reverse.  But early in the opening argument by GE Energy’s attorney, Shay Dvoretzky, a Washington, D.C. partner in Jones Day, Chief Justice John G. Roberts Jr. showed a concern he focused on repeatedly, that being able to force arbitration against a party who never consented would be inconsistent with “one of the central propositions of our arbitration precedents that arbitration is based on agreements.”

Dvoretzky had urged the Court to permit the use of the equitable estoppel doctrine as part of a group of methods by which nonparties can invoke an arbitration agreement under the New York Convention. Respondent Outokumpu contended that the Convention requires a signed arbitration contract by the party invoking arbitration.

Roberts seemed to share reservations about nonparties.  Responding to his own hypothetical for Dvoretzky, the chief justice said, “here somebody who never agreed to arbitration is being forced into arbitration, even though he has a clear right to take his dispute to court.”

While admitting that arbitration is a matter of consent, Dvoretzky argued that the consent by the respondent was exhibited by the contract’s existence with its arbitration provision, even if it didn’t name the party.  The scope of that agreement, at least in the context of FAA Chapter 1, had been determined Arthur Andersen LLP v. Carlisle, 556 U.S. 624, 630–31 (2009) (available at http://bit.ly/3442FxB), which extends the agreement’s use to nonparties under a variety of doctrines, without restriction to signatories.

The case arose out of a dispute between respondent Outokumpu, a Calvert, Ala., steel manufacturer, and a subcontractor, GE Energy, which agreed to supply nine motors to run three steel mills which failed.

While the contract between Outokumpu and its construction general contractor included an arbitration agreement, subcontractor GE Energy was not yet selected, according to Dvoretzky, and not a signatory.  When Outokumpu filed suit against GE Energy in a state court, the subcontractor removed to federal court and moved to dismiss and compel arbitration under the contract.

Alabama’s Southern District federal court granted GE Energy’s motion to compel arbitration and dismissed the action, but on appeal, the Eleventh Circuit reversed.

The appeals court acknowledged that, for domestic arbitration agreements, equitable estoppel allows the non-signatory to enforce the arbitration clause under Arthur Andersen.  But the circuit court distinguished international arbitration agreements, and held “to compel arbitration, the [New York Convention] requires that the arbitration agreement be signed by the parties before the Court or their privities.”

Shay Dvoretzky opened his argument on GE Energy’s behalf by noting that the New York Convention is silent about enforcement by non-signatories.  “That silence is consistent with the Convention’s design, which sets a floor, not a ceiling, for enforcing arbitration agreements and awards,” he explained.

According to Dvoretzky, since the Convention doesn’t say states can’t do more than what the Convention requires, the rest is left to the states’ domestic arbitration laws. Dvoretzky further contended, “Other contracting states are close to unanimous that the Convention does not preempt domestic law allowing non-signatory enforcement.”

Justice Elena Kagan told Dvoretzky, “It seems odd that Congress would have passed the implementing legislation on the view that another contracting state could compel arbitration without any consent whatsoever.”

“I think this goes to the core question of what the Convention is trying to do,” countered Dvoretzky, adding, “The Convention is trying to set forth minimum standards by which other countries will recognize and enforce arbitration agreements.”

After Justice Neil Gorsuch seemed satisfied by Dvoretzky’s response that there was nothing in the New York Convention preventing the use of the equitable estoppel doctrine in matters under the treaty, Kagan jumped back into the discussion, saying she agreed with the chief justice:

If you’re talking about an alter ego or something like that, or a successor in interest, maybe that person counts as a party, even though it is not the signatory but there is some limit.  . . .

[S]o if it’s a matter of voluntary consent, and everybody thinks that that’s what arbitration is, shouldn’t we read the parties to be, you know, the parties? Nobody else.

Dvoretzky responded with a return to Arthur Andersen. “Certainly under domestic law it is understood to be a matter of voluntary consent,” he said, “but the Court saw no issue with the possibility after an equitable estoppel theory that would allow a nonparty to enforce.”

Jonathan Y. Ellis, Assistant to the Solicitor General whose amicus argument supported GE Energy, explained that the New York Convention’s role is to assist courts in the recognition of international arbitration agreements, but it doesn’t provide a comprehensive set of arbitration rules. He argued that the Convention presumes validity of arbitration agreements, and doesn’t speak to agreements’ scope.

Justice Sonia Sotomayor leaned toward GE Energy’s case during Ellis’s argument, but pushed for a rule. She appeared to agree that there are bases for the argument that contracting states can pick who the parties are, but she also said that there should be limits.  “What’s the limiting principle of equitable estoppel?” she asked, adding, “It can’t be every single type of equitable estoppel is okay.”

She added that if GE is contemplated by the contract as a supplier, the matter “seems like a fairly straightforward case to me.”

Ellis responded that the New York Convention has standards on whether an arbitration agreement was reached between the parties, and signatory states’ limits on recognizing “other types of arbitration agreements” needs to be satisfied.  But, he said he didn’t think the Convention “can be read to impose those limits.”

Jonathan D. Hacker, a partner in Washington D.C.’s O’Melveny & Myers LLP, disagreed with GE Energy’s Convention interpretation in his argument on behalf of the steelmaker Outokumpu. Instead, Hacker asserted that the Convention makes it a ceiling—declaring that a written agreement by the parties is necessary to enforce international arbitration agreements.

After a hypothetical by Justice Stephen G. Breyer that allowed a successor party to arbitrate a contract via domestic law, Hacker contended that allowing domestic law to decide who gets to enforce arbitration “creates a huge problem under the Convention because then the states can begin subjecting parties to arbitration” even without consent, which he said is against the Convention’s requirements.

In closing, Hacker argued that “extension of an arbitration agreement to non-parties” is “supposed to be the exception that you almost never see,” and if GE Energy’s interpretation is adopted, “essentially all subcontractors would suddenly be able to arbitrate, even absent a written agreement.”

The Supreme Court’s decision, expected by the end of the term in June, may be crucial not just for arbitration practitioners, but also for parties engaged in cross-border transactions that involve performance by non-signatories.  If the Court affirms the circuit court’s decision, it may create the need for more detailed participation of potential parties, as signatories, for contracting.

* * *

Tuesday’s GE Energy arguments were the second of two for Chief Justice Roberts who, after the case concluded, walked across the street to the U.S. Capitol from the Court to begin his new second job presiding over the U.S. Senate impeachment trial of President Trump.

* * *

This post is based on the transcript of the arguments, posted Tuesday afternoon, and is available on the Court’s website at http://bit.ly/2RD1JMG.

Chung, a law student at Benjamin N. Cardozo School of Law at New York’s Yeshiva University, is a 2020 spring semester CPR Intern; Bleemer edits Alternatives for the CPR Institute at altnewsletter.com.

The Nominee’s Record on Dispute Resolution

BY PETER FEHER & RUSS BLEEMER

President Obama’s nomination of District of Columbia U.S. Circuit Court Chief Judge Merrick Garland didn’t bring with it a substantial judicial record on alternative dispute resolution cases.

But a new U.S. Supreme Court Associate Justice Garland won’t be a stranger to litigation over arbitration either.

Garland, 63, is in a tough confirmation fight.  At this writing, Senate Majority Leader Mitch McConnell, R., Ky., vowed not to allow a vote on a successor to the late Antonin Scalia before the November presidential election.

But Garland had bipartisan support when he was nominated to the D.C. Circuit in 1999 by President Clinton. He was confirmed 76-23, with a majority of Senators in both parties supporting him. Garland is well-respected on both sides of the aisle and in the legal community and reportedly was on the president’s list for SCOTUS nominees previously, when Associate Justice Sonia Sotomayor was nominated and confirmed in 2009, and Associate Justice Elena Kagan joined the Court a year later.

Research provided a limited number of arbitration cases before the D.C. Circuit in which Garland participated.  They show he backed arbitration.

It’s unclear whether and how the subject of ADR processes arose in his non-judicial career, which also is discussed below.  Garland’s extensive prosecutorial work at the U.S. Department of Justice as well as an Assistant U.S. Attorney for the District of Columbia was on the criminal side; he also was a litigation partner at Washington, D.C.’s Arnold & Porter.

Garland is probably best known for his U.S. Justice Department service from 1993 to his 1999 appointment as U.S. Circuit Judge.  During the period, when he was DOJ’s Principal Associate Deputy Attorney General, his responsibilities included supervising the Oklahoma City bombing and Unabomber prosecutions.

* * *

In the D.C. Circuit, Garland wrote the unanimous affirmance in Kurke v. Oscar Gruss and Son Inc., 454 F.3d 350 (D.C. Cir. 2006)(available at bit.ly/1MjsCPT). The opinion backs arbitrators who awarded a brokerage customer damages after his account was churned, and the defendants charged that the award was made in manifest disregard of the law.
The case concerned a customer who brought an action seeking confirmation of an arbitration award brought by plaintiff David Kurke against securities firm Oscar Gruss, and a firm executive, after the customer’s account was subjected to what the plaintiff charged was unauthorized trading, churning and a breach of fiduciary duty.

An arbitration panel agreed, awarding Kurke compensatory damages from both Oscar Gruss and the executive, in the amounts of $648,000 and $58,000, respectively. According to the Garland opinion, Oscar Gruss trading had turned Kurke’s $520,000 investment into $39,000, just four months after the account had been valued at more than $1 million.
The federal district court granted Kurke’s enforcement petition, and Oscar Gruss appealed the arbitration award.

The appellants urged that the awards can be vacated on the ground that the arbitrators made them in “manifest disregard” of the law.

The opinion indicated that manifest disregard “is an extremely narrow standard of review.” Under the standard, the reviewing court must find that arbitrators knew of governing legal principle yet refused to apply it or ignored it altogether, and the law ignored by the arbitrators was well-defined, explicit and clearly applicable to the case. Kurke, at 354 (quoting LaPrade v. Kidder, Peabody & Co. Inc., 246 F.3d 702, 706 (D.C.Cir. 2001)).

The firm argued that the arbitration panel’s award to Kurke was made in manifest disregard of the law because under the terms of his margin agreement, Kurke’s failure to object to the unauthorized trades in writing within the stipulated time frame effectively ratified those trades.  The defendants argued that Kurke’s failure to mitigate his damages after he became aware of them relieved the company for liability for Kurke’s losses. Kurke, at 355.

Circuit Judge Garland noted three exceptions to the rule that ratification agreements will be enforced.  The opinion notes that the arbitrators could have refused to enforce the ratification agreement if they credited Kurke’s testimony that he did not comprehend the highly complicated options trades contained on his monthly statements; that assurances or deceptive acts forestalled his filing of the written complaint; or that Kurke was not advised of his right to reject the unauthorized trades.  Kurke, at 356.

Focusing on statements by an Oscar Gruss employee that forestalled the plaintiff from acting, Judge Garland wrote, “we can readily ‘discern [a] colorable justification for the arbitrator[s’] judgment,’ . . .  and cannot say their award was made in manifest disregard of the law regarding ratification.’” Id.

Garland rejected the appellants’ other arguments to establish manifest disregard and affirmed the District Court’s arbitration award in full.

* * *

In Aliron Int’l Inc., v. Cherokee Nation Indus. Inc., 531 F.3d 863 (D.C. Cir. 2008)(available at bit.ly/22BaC7J), Circuit Judge Garland, who became the D.C. Circuit’s chief judge in February 2013,  affirmed a district court’s decision to compel arbitration.

In the case, the U.S. Army entered into a “Prime Contract” with Cherokee Nation, or CNI, which in turn entered into a subcontract with Aliron to provide the service and staffing resources that CNI needed to fulfill its duties under the Prime Contract.

The parties agreed that the subcontract “shall be construed and interpreted in accordance with the laws of the State of Oklahoma” and that “any dispute between the parties will be submitted to binding arbitration in the State of Oklahoma. The parties further agreed Oklahoma law “shall govern the arbitration proceedings.” Aliron International Inc., at 864.

About two weeks into the contract performance, the parties had to enter into an additional support agreement in order to comply with the Status of Forces Agreement between the United States and Germany.  The SOFA precluded CNI from hiring a subcontractor under the Prime Contract. But unlike the subcontract, the Support Agreement did not include an express provision requiring arbitration of all disputes. Id. at 864.

Aliron filed an action against CNI for breach of obligations under the Support Agreement. CNI moved to compel arbitration of the dispute. CNI argued that although only the subcontract contained an express arbitration clause, the two documents should be read together.

The District of Columbia federal district court agreed with CNI, holding that “because the Subcontract and the Support Agreement involve the same subject matter, and because the plain language on the fact of the Support Agreement indicated that it was entered into to preserve the intent of the Subcontract, they must be construed together as one contract.” Id. at 865.

Garland noted in an opinion on behalf of the unanimous three-judge federal appellate panel that courts generally should apply ordinary state law principles that govern contract formation. He wrote, “The Oklahoma Supreme Court has long instructed that ‘[w]here two contracts, not executed at the same time, refer to the same subject matter and show on their face that one was executed to carry out the intent of the other, it is proper to construe them together as if they were one contract.’” [Citations omitted.]

Two criteria must be satisfied before the subcontract’s arbitration provision can be deemed to govern disputes under the Support Agreement, according to the Garland opinion:  “(1) the Subcontract and Support Agreement must each refer to the same subject matter, and (2) the Support Agreement must show on its face that it was executed to carry out” the subcontract’s intent. Id. at 866.

Judge Garland found both elements were satisfied and required the two contracts to be read together as one under Oklahoma law because they referred to the same subject matter, and because the Support Agreement plainly showed that it was executed to preserve the subcontract’s intent. Id. at 868.

In affirming the lower court, Garland rejected two additional arguments by Aliron, one which required extrinsic evidence about the contract, and another contesting the formation of an arbitration agreement.

* * *

Judge Garland handed down another decision that mentioned alternative dispute resolution in labor law. In the case, Davenport v. Int’l Brotherhood of Teamsters, AFL-CIO, members of a flight attendants union brought an action against the union and the employer challenging the union’s failure to submit a temporary side agreement on work hours to the collective bargaining accord to a rank-and-file ratification vote. 166 F.3d 356 (D.C. Cir. 1999)(available at bit.ly/1Vyplyw).

The flight attendants sought a temporary injunction against the side agreement—which had been sparked by a change in federal law—that was denied in the district court.  Again writing for a unanimous D.C. Circuit panel, Garland’s opinion affirmed the lower court.
The employer-airline in the case—Northwest Airlines Inc., now part of Delta Air Lines Inc.–was subject to the Railway Labor Act.  Under the act, an adjustment board established by the employer and the unions had exclusive jurisdiction over “minor disputes”–those arising “out of grievances or out of the interpretation or application” of existing collective bargaining agreements.

Circuit Judge Garland noted that in “’major disputes,’ however, the district courts have jurisdiction to enjoin violations of the status quo pending the completion of required bargaining and mediation procedures.” Id. at 367. Major disputes go to the formation of the collective agreements, the opinion says.

But Garland wrote that the plaintiffs’ contention that the dispute was a “major dispute” requiring an injunction couldn’t be sustained.  The opinion held that there wasn’t enough grounds to vacate the district order for major-dispute ADR treatment or any of the other grounds on which the plaintiffs sought the court’s intervention.

It did allow re-argument of the “major dispute” controversy, since it was bought by the union itself late in the litigation.  But it’s not clear that the case got beyond the argument stages, because the collective bargaining agreement was due to be renegotiated to account for the side agreement. Press reports indicate that the relationship between Northwest and its union became strained later in 1999 over several issues, and headed to mediation. See, e.g., Associated Press, “Protesters disrupt Northwest Airline meeting,” Deseret News (April 24, 1999)(available at bit.ly/1RhBNQ9).

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Some business lobbyists are wary of Garland’s nomination given his deference to government agencies.

According to a Corporate Counsel article, while Garland has significant experience deciding challenges to government regulations, given the focus of the D.C. Circuit on administrative appeals, he has less experience on corporate law and governance questions. Rebekah Mintzer, “Justice Merrick Garland: Bad for Business?” Corporate Counsel (March 21)(available at bit.ly/1UCwHkS).

The article points out that, like Justice Scalia, who he would replace, Garland adheres to the Chevron doctrine, under which the judiciary defers to agency interpretations on ambiguous statutes under the agency’s jurisdictions.

This tendency, Corporate Counsel notes, has business groups worried because they are not sure how Garland would come out on corporate law decisions.  The nation’s largest small-business lobbying group, the National Federation of Independent Business, opposes Garland’s confirmation.

One key area that may implicate conflict resolution practices is labor and employment. Garland has firmly backed the National Labor Relations Board, affirming the view of the agency—which oversees workplace issues as embodied in the National Labor Relations Act—in 18 out of 22 cases that have come before him.

It’s likely that the Supreme Court will get that exact task in the arbitration context soon.  Cases are bubbling up in which federal courts have firmly backed the Court’s view that the Federal Arbitration Act allows for mandatory individual arbitration processes in employment disputes where the employee is required to waive class action litigation or arbitration.

But the principal case from which federal courts are adopting that view is a consumer credit case, AT&T Mobility LLC v. Concepcion, 563 U.S. 333 (2011)(available at bit.ly/1MWMHVN).

The NLRB in 2012 decided that the NLRA trumps the FAA, and has produced dozens of decisions banning class action waivers.  It is continuing to issue those decisions even though it has been struck down in federal courts around the country, most notably in the Fifth U.S. Circuit Court of Appeals.  Both the NLRB and management-side labor lawyers expect the case to go to the U.S. Supreme Court to resolve the conflict. For full details, see “Cutting Arbitration Classes: Facing Court Defeats on Workplace Waivers, the NLRB Refuses to Back Down,” 34 Alternatives 1 (January 2016)(available at bit.ly/1LEnG8o).

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While Merrick Garland apparently hasn’t dealt with arbitration during his professional career as a corporate litigator and prosecutor, upon his confirmation he would be dealing with a slate of cases involving business issues.  But at this writing, no arbitration cases are on the Court’s docket.

Although unrelated to ADR practice, several partners at Garland’s former firm, Washington, D.C.’s Arnold & Porter said that the D.C. Circuit chief judge focused on the arcane area of antitrust, which he reportedly taught at his alma mater, Harvard Law School.  “Garland worked on antitrust cases, a specialty of the firm, several former partners said, yet few remembered specific cases he worked on.” Katelyn Polantz, “Lightning Strikes Twice at Arnold & Porter with Merrick Garland Nomination,” National Law Journal (March 17)(available at  bit.ly/1Re0Jcs). The article also notes that in one year during his practice, Garland also published articles in both Harvard Law Review and Yale Law Journal.

Garland, unlike some of his fellow appellate judges, does not speak publicly much. The National Law Journal collected some highlights of his notable decisions and public statements at Zoe Tillman, “The Quotable Merrick Garland: A Collection of Writings and Remarks,” National Law Journal (March 16)(available at  bit.ly/1pxgKPY).

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Feher is a Spring 2016 CPR Institute intern, and currently is a student at Brooklyn Law School, Class of 2016. Bleemer edits the CPR Institute-published Alternatives to the High Cost of Litigation.