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Februry 5 2020
2019 was an important year for international arbitration developments in the United States, both in the commercial and investment context. Some of the more far-reaching developments included the deepening circuit court split on whether "manifest disregard" of the law is a grounds to refuse enforcement of an award, the first U.S. Court of Appeals decision post-Intel, addressing whether an international arbitration tribunal is a "foreign or international tribunal" within the framework of 28 U.S.C. Section 1782, and jurisprudence and thought leadership events on the topic of corruption. We also witnessed (and continue to witness in 2020) the effect of the United States' "America First" policy.
As we move into the next decade, 2020 promises to be another exciting year for international arbitration developments in the United States. This year, the U.S. Supreme Court has already heard oral arguments regarding whether a non-signatory to an arbitration agreement can compel arbitration. Moreover, we look forward to seeing what may develop with the framework for Section 1782 discovery, following the Sixth Circuit's recent holding. We are also entering an election year in the United States, which may have implications for domestic politics and foreign affairs. Each of these topics is discussed in more detail below.
- Key Developments Relating to the New York Convention and Arbitrability
2019 saw several key developments concerning the New York Convention, as codified in the U.S. by the
Federal Arbitration Act (FAA), and also the broader concept of arbitrability.
A. Interpretation and Application of the New York Convention vis-a-vis the Federal Arbitration Act
The writing requirement pursuant to Article II(2) of the New York Convention in the context of non-signatories was considered by the Eleventh Circuit in
Outokumpu Stainless USA, LLC, et al. v. GE Energy Power Conversion France SAS, Corp. As
explained by our contributor, Outokumpu entered into supply contracts for mill motors that appended a subcontractor list with mandatory suppliers, one of which was GE. Each supply contract contained an arbitration agreement. When the motors failed, Outokumpu commenced suit against GE and GE sought to compel arbitration. The Court held that "there was no arbitration agreement in writing within the meaning of the Convention between Outokumpu and GE," reasoning that "private parties ... cannot contract around the Convention's requirement that the parties actually sign an agreement to arbitrate their disputes in order to compel arbitration."
Oral argument was
heard by the U.S. Supreme Court on January 21, 2020 and the core issue under consideration is whether the New York Convention "permits a non-signatory to an arbitration agreement to compel arbitration based on the doctrine of equitable estoppel." We can anticipate a decision on this question within the next few months.
The concept of "
manifest disregard" of the law as a grounds for refusing enforcement of an international arbitration was considered by the Second Circuit in
Weiss v. Sallie Mae, Inc. As
explained by our contributors, the Second Circuit accepted the manifest disregard of the law argument as a valid basis for challenging awards. This further cements a circuit split within the U.S., where certain Circuit Courts,
including the Eleventh Circuit, will not accept "manifest disregard" of the law as a valid basis for vacating an arbitral award because it is not expressly provided as a ground under the FAA. This issue continues to ripen and we can expect that it will, in the coming years, be considered and clarified by the U.S. Supreme Court. This will be a welcome development, as the U.S. Supreme Court has not considered the matter since 2008, when in
Hall Street Assocs., LLC v. Mattel, Inc. as summarized by our contributors, the Supreme Court "ruled that the only bases for vacating an arbitral award are the ones expressly stated in the FAA, which does not included manifest disregard, but declined to rule that manifest disregard was dead."
B. Arbitrability
During 2019, the U.S. Supreme Court considered key principles of international arbitration in
Schein, Inc. v. Archer & White Sales, Inc. The holding in Schein maintains that "courts must respect the terms of the arbitration agreement as written and that, if the parties agreed, an arbitral tribunal has the power to decide questions of arbitrability." In
summary, The Court maintained its holding in First Options, that "courts should not assume that the parties agreed to arbitrate arbitrability unless there is clear and unmistakable evidence that they did so."
We also
learned what can happen when state law is not drafted with arbitration mind, reinforcing the importance of choosing a respected arbitral seat. In
Stemcor USA, Inc., this dichotomy was front and center when a party attempted to use state law legal procedures to attach property to support an arbitration award. Stemcor USA, Inc. involved breaches of multiple contracts due to failures to deliver pig iron. As a result, Daewoo International Corp. filed an action in Louisiana federal district court to compel arbitration and sought writs of attachment.
While arbitration is often touted as an efficient and quicker way to resolve a dispute, the writ of attachments spawned litigation that ran on for years, as a result of jurisdictional issues, appeals, and the Fifth Circuit certifying the question to the Louisiana Supreme Court. "Finally, more than six years after getting the attachment, and with three District Court Decisions, three Fifth Circuit decisions, and a Louisiana Supreme Court decision, Daewoo got to hold onto its pig iron proceeds."
2. Advancements in the Global Discovery Debate
As 2019 developments alone create a more deeply entrenched debate, practitioners are working arduously to further relevant jurisprudence and its understanding. At the end of 2019, the
first book considering Section 1782 discovery as an independent discipline was published. Meanwhile, early this year, the Second Circuit is expected to settle internal disparity among the district courts over which it has jurisdiction through the much awaited appellate decision in
In re Hanwei Guo. Guidance of the U.S. Supreme Court is become increasingly welcome by U.S. practitioners. Meanwhile, as Section 1782 discovery continues to proliferate, practitioners cannot help but wonder how it might interact with more global views of disclosure and discovery, particularly in light of the French blocking statute and GDPR compliance.
3. Allegations of Bribery and Corruption in Arbitration Proceedings
Issues of corruption were addressed in U.S. international arbitration jurisprudence. In
Vantage Deep Water Co. v. Petrobras Am., Inc., a Texas federal district court denied Petrobras' motion to vacate Vantage Deepwater Drilling's arbitral award based on corruption of the underlying contract. Petrobras submitted that the award should be set-aside pursuant to the Inter-American Convention on International Commercial Arbitration. While Petrobras argued that the bribery violated U.S. public policy (one of the narrow exceptions to enforcing an arbitral award under U.S. federal law), the Court "took the view that public policy did not refer to any international notion but rather should be examined with respect to Texas law. In this case, Petrobras continued with recognizing the agreement with the knowledge of the bribery allegations, and thus, ratified the agreement under Texas law." As
explained by one of our contributors, the case is particularly "notable in that it squarely acknowledges that a state actor or state-owned entity should not use their own misconduct as a defense, particularly when they later ratified that conduct."
In re Application of The Islamic Republic of Pakistan v. Arnold & Porter Kaye Scholer, LLP demonstrated that various compelling and current issues can intersect in the context of any one case. The federal district court for the District of Columbia considered Pakistan's request for Section 1782 discovery from an investor's American counsel in aid of an ICSID arbitration and pending criminal investigations in Pakistan against the backdrop of corruption allegations. As
explained by our contributor, the Court ultimately denied the request for production of documents, recognizing that the jurisdictional reach of the ICSID tribunal and Pakistani criminal authorities encompassed the scope of relevant materials and, moreover, that attorney-client privilege might undermine the substance of the request. However, Pakistan's request for written answers by way of interrogatories was granted.
Reflecting the arbitration community's increasing interest in bribery and corruption in arbitration proceedings, such allegations were also considered during the ILA American Branch Investment Law Committee's conference titled "
What to Do About Corruption Allegations? Debating the Options for Investment Law" held on February 19, 2019 in Washington, D.C. The conference addressed the resolution of corruption allegations in international investment arbitration following the
Metal-Tech Ltd. v. Uzbekistan and
Spentex Netherlands, B.V. v. Uzbekistan awards. In the aftermath of those awards, the field of investment arbitration has grappled with questions regarding the proof of corruption and response to findings of corruption. Those awards combined flexible evidentiary techniques for assessing corruption allegations with the outright dismissal of the arbitration upon finding corruption. The
conference addressed whether and to what degree investment arbitration should follow such approaches to addressing corruption.
4.Domestic and Regional Developments - Carrying Global Significance
While foreign policy is not usually a focus of the Blog, its interaction with international disputes cannot be denied. During 2018 and 2019, we have seen a number of developments initiated by the U.S. "America First" protectionist approach to economic sanctions and we enter 2020 with a changed view of the landmark 2015
Joint Comprehensive Plan of Action (JCPOA) Iran nuclear deal. The U.S. walked away from the deal in 2018, and in response, Iran decreased its compliance efforts. This created a ripple effect in the world of extraterritoriality, conflict of laws, and secondary sanctions.
In recent weeks, global headlines were made when the E.U. partners of the JCPOA indicated their intent to invoke the deal's
dispute resolution mechanism. On the private dispute resolution side, challenges concerning available claims and defenses may emerge as international actors encounter disputes related to their international activities. Our contributors
directly considered the dilemma and practical concerns faced by international arbitrators. This is a new and emerging area of law to be closely watched by global practitioners.
Meanwhile, "NAFTA 2.0," the
U.S.-Mexico-Canada Trade Agreement (USMCA), continued toward ratification and entry into force. As reported in our 2018 year in review
post, this is a significant regional development as the USMCA's Chapter 14 departs from NAFTA's Chapter 11, both in terms of procedure and substance of protections available to prospective investors. As
reported earlier on the Blog by assistant editor Enrique Jaramillo, the significant advancements made in recent weeks likely mean the USMCA will enter into force in May 2020. It is also likely time for practitioners to consider the timing of legacy claims under original NAFTA, before it is no longer in force, and its interaction with the USMCA as it enters into force and
heralds a new era in regional investor-state dispute settlement.
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Lawyer's Advocacy in Arbitrations: The Top 10 Horrible, Terrible, No Good Mistakes Lawyers Make
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Februry 20 2020
There's a great argument that lawyer advocacy in an arbitration is more essential than at a trial in court. This post is the beginning of the 10 most horrible, terrible, no good, "bang your head against the door" mistakes that I have seen lawyers make in arbitrations, both when I served as counsel but primarily when I served as an arbitrator. Agreeing to arbitrate a dispute, whether in a contract or by agreement, is a serious decision for any business.
There are pros and cons to binding arbitration versus trial in a court that go beyond a series of blog posts, but the fact is that when a dispute is arbitrated, finality is the rule: It is very difficult to appeal an arbitration award. In many instances, representing a party in an arbitration requires more due diligence and work than a trial. Great "arbitration" lawyering is therefore essential but... many times does not happen.
Number 1: Mangling the Drafting of Binding Arbitration Clauses
Yes, this applies to your transactional lawyers as well as litigators. Arbitration is a matter of contract. Federal and state law allow for the enforcement of arbitration clauses. Courts now favor arbitration. There are plenty of articles out there on drafting arbitration clauses, but far too often drafters fail to consider the basics:
- What "rules" will apply to any arbitration, which will have key topics such as filing fees, and how will the arbitrator(s) be chosen? You must read those rules before agreeing to have a "bet the business" dispute resolved via arbitration.
- What disputes under the contract will be subject to arbitration? "Any and all" disputes or limited issues? Be careful not to create months and years of litigation arguing about the scope of an arbitration clause.
- Since discovery between parties (especially depositions) and third-party discovery is typically limited under most arbitration rules, what information will your client need in the event of a dispute?
- Will there be a condition precedent to the formal filing of an arbitration, such as going through a series of management meetings or even a mediation?
- Do you include pre-qualifications for the arbitrators, especially if the disputes are very industry specific?
- What about the venue for any hearings? It can be a tremendous advantage to have the hearing in your backyard with (typically) arbitrators who are local.
- Should you have one arbitrator or a panel of three (which can be very expensive)?
- And good luck re-negotiating a poorly written arbitration clause that makes no sense after a dispute has arisen.
The primary point is this: If the business decision is made to resolve disputes via arbitration versus court, it is vital to make sure that you have a workable "clause" that makes sense considering the subject of the contract. And then, if you are presented with a fully executed contract with an arbitration clause, read the clause and especially the "rules" that will be applicable.
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The progression of arbitration law in the American legal system has been steadfast. Despite a few uneasy rulings, the U.S. Supreme Court ("SCOTUS" or "the Court") has provided resolute support for arbitration and proclaimed the legitimacy of its enhanced adjudicatory role. The few rulings that strayed from the contemporary judicial evaluation of arbitration
1) eventually were reconsidered and their impact on the law significantly lessened or entirely redefined. For example, the Rodriguez Court reversed Wilko v. Swan; Bernhardt Polygraphic was replaced with the Federalism Trilogy; Volt Information Sciences was recast as a contract freedom case; and Sutter virtually reversed Stolt-Nielsen.
3) U.S. law provides that arbitral adjudication can apply to all civil disputes and, once chosen by the contracting parties, will yield binding determinations at a lower cost and more quickly than its judicial counterpart.
The Steelworkers Trilogy
2) in 1960, along with the cases on international litigation and arbitration
4) foreshadowed the Federalism Trilogy
5).
The federalism cases spread the Court's new assessment of arbitration to all levels of the American legal system. A contractual reference to arbitration could achieve what had eluded the American dispute resolution system throughout its history: efficient and effective adjudication. The law, in effect, had failed society by demanding that the legal system provide absolute procedural rectitude in the trial, extensive adversarial discovery in building the record, and appeal on the merits. By contrast, the characteristics of arbitral adjudication constituted, in and of themselves, a functional form of due process. Domestic civil justice and functional global commerce could best be realized through the submission of disputes to arbitration.
The revamped arbitration doctrine survived the periodic changes in the Court's composition. A majority of the justices consistently agreed that arbitration was an effective solution to the problem of the inaccessibility of civil justice. As in other Western democracies, American society had evolved and changed significantly in terms of population, structural character, and its need for resources. The entanglements and leaden pace of the legal methodology was having a ruinous impact upon the social order. Adjudication, therefore, needed to be altered and made more accommodative of societal needs. The demanding burdens of civil litigation were neither tolerable nor workable. American society could not constitutionally abandon its obligation to provide fair and impartial civil justice by accepting or acquiescing to the operational dysfunctionality of the civil adjudicatory process. For the Court, arbitration could remedy the problems of civil litigation. The judicial commitment to arbitration would, over time, bring about a systemic revolution in American law.
SCOTUS' faith in arbitral adjudication evidently influenced the substance of its rulings on arbitration. Prior to their ascension, no member of the Court ever professed an in-depth knowledge of or a strong interest in arbitration. In fact, the opinion in some cases, e.g.,
First Options of Chicago v. Kaplan, 514 U.S. 938 (1995), demonstrated a spotty knowledge of arbitration. Justices were on the Court because of their legal skills, their familiarity with judicial litigation, and their political involvements. Prior to their period of service, few, if any, members of the Court ever touted non-judicial adjudication. The leadership of the Court, in particular Chief Justice Warren Burger, wanted all its members to become aware of the grave failings of the legal process and to join the effort to eradicate them. During their tenure, a number of justices bettered their understanding of arbitration and developed a much deeper appreciation of the remedy and its beneficial impact upon the legal process.
Political convictions, however, generated consternation about arbitration. The unilateralism of adhesion reduced the majority in favor of arbitration. The long-standing social justice contention between the 'haves' and 'have-nots' cooled the attention given to judicial reform through private contract. While a majority could still be constituted in favor of arbitration, opposing political persuasions created a sense of disunity among the justices. Despite the political differences, the Court continued to sustain party recourse to arbitration. Law and policy would need to be reconciled to maintain a majoritarian position on arbitration. Subsequent rulings established a more measured balance between law and arbitration, but also intensified the critique of law and the support for litigation through arbitration. Rulings depended upon the current and evolving needs of the legal system and society. Legal positions often varied by circumstance and group dynamics within the Court. Be that as it may, a majority of justices continued to favor arbitration strongly because it harbored a 'real' solution to the need for effective civil litigation.
Throughout his tenure on the Court, Justice Thomas objected to arbitration and the application of the FAA on a states' rights basis. Like Justice Scalia and O'Connor, Justice Thomas believed that the federal statute was never intended to apply in state courts. In his view, state courts were free to apply state law in arbitration cases and reach results different from those likely in federal courts. Nevertheless, Justice Thomas voted with the majority in the class waiver cases. Since Justice Scalia's death, Justice Thomas has resumed emphasizing that the FAA is federal law that is not binding on state courts. For the sake of accuracy, any assessment of Justice Thomas' position on arbitration should take into account his dissent in Mastrobuono because it is a powerful statement of the standing of the prior decision in Keating. Justice Thomas convincingly argues that the two opinions cannot be reconciled.
Justice Alito is as reluctant as Justice Thomas on the topic of arbitration, if not more so. He appears to be the most likely justice to oppose the "emphatic [strong, liberal] policy favoring arbitration." He came to the Court from the Third Circuit, a federal appellate court that frequently advocates for restrictions on arbitration and arbitrability-a position also espoused by the Ninth Circuit.
Justice Alito's opinion in Stolt-Nielsen v. AnimalFeeds was an unequivocal criticism of arbitration's trespass on the legal system's jurisdiction, mission, and authority. In Stolt-Nielsen, the Court held that a special jurisdictional award rendered by an AAA Panel was null and void because the arbitrators failed to provide a legal basis for their ruling-in effect, amounting to a form of merits review of the award prohibited by current law and strongly disfavored by judicial policy. In effect, the Court deemed that the arbitrators should rule as judges would have ruled. By disappointing that expectation, the arbitrators' conclusions were deemed unenforceable. This view of arbitration is antiquated and should no longer be possible in the contemporary legal regulation of arbitration.
Nonetheless, the future of arbitration in the U.S. and like-minded legal systems seems to be strong. Judicial hostility is seen as an outdated and arthritic position. International commercial arbitration is more developed and well-established than its domestic counterpart. There is long-standing and significant legal and political support for arbitration in Western European democracies (e.g., France, England, Switzerland, The Netherlands, and Belgium). Court acceptance of and support for arbitration is critical. The courts enforce both arbitral agreements and awards. Law firms have developed departments in arbitration. International commercial litigation is basically conducted through arbitration. States even use arbitration to resolve foreign investment and related problems; it has proven successful, but sovereignty nonetheless remains an obdurate obstacle to adjudicatory civilization. Arbitration is the most energetic development in law in a very long time.
Arbitration is an area of legal practice that promises great professional opportunities. The allure of arbitration has become virtually impossible to resist. For these reasons, this author decided to write his Seventh Edition of the
Law and Practice of United States Arbitration.
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Recently, the U.S. District Court for the Northern District of Georgia (the "District Court") put the
problem with
emergency arbitration front and center: it
refused to confirm and enforce an emergency interim arbitration award (the "Emergency Award") awarded by an
emergency arbitrator (the "Emergency Arbitrator") under Article 6 of the American Arbitration Association's International Center for Dispute Resolution International Arbitration Rules ("
ICDR Rules"). Instead, the District Court held that because the Emergency Award was not a final award, the District Court lacked subject matter jurisdiction and dismissed the case. Al Raha Grp. For Tech. Servs. v. PKL Servs. Inc., No. 1:18-cv-04194 (N.D. Ga. Sept. 6, 2019). To add insult to injury, the merits arbitration was stayed for almost a year while the District Court considered whether to enforce the Emergency Award. In this case, emergency arbitration failed to protect the parties and resulted in a year-long delay in the arbitral proceedings. With results like these, it raises the question of whether emergency arbitration is worthwhile for both parties to include in their contracts and for arbitral institutions to
include in their rules.
The Al Raha Case: Emergency Awards Cannot be Enforced
Al Raha Group for Technical Services ("Al Raha"), a Saudi corporation, entered into a subcontract with PKL Services, Inc., ("PKL"), a U.S. corporation. A dispute arose between the parties when PKL attempted to terminate the subcontract between PKL and Al Raha. Al Raha filed a demand for arbitration and statement of claim. Simultaneously, Al Raha also filed an application for emergency injunctive relief under the ICDR Rules seeking to prevent PKL from terminating the subcontract. The Emergency Arbitrator was appointed; and after a telephonic hearing and written submissions by the parties, the Emergency Arbitrator issued the Emergency Award on August 27, 2018 prohibiting PKL from terminating the subcontract until the three-member arbitral panel was appointed.
PKL, nonetheless, moved forward with a replacement subcontractor while filing a motion under the ICDR Rules to vacate or modify the Emergency Award. In response, Al Raha filed a Motion for Preliminary Injunction with the District Court seeking to confirm the Emergency Award and prohibiting PKL from terminating the subcontract.
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n support of its motion for preliminary injunction, Al Raha asserted that the District Court had jurisdiction pursuant to the
Federal Arbitration Act ("FAA") and the
New York Convention. 9 U.S.C. § 201 et seq. Al Raha acknowledged that the Eleventh Circuit had not definitely addressed whether federal district courts have jurisdiction over interim arbitration awards, but that other circuits and district courts have concluded that district courts have jurisdiction in such cases.
PKL countered, arguing that the District Court lacked subject matter jurisdiction over the petition because the Emergency Award was not final - no determination had been made on the merits of any of the issues presented. Further, PKL pointed to the ICDR Rules, which-similarly to most institutional rules on emergency arbitration-state that once a tribunal is constituted, it may reconsider, modify, or vacate an emergency award.
Al Raha filed its Motion for Preliminary Injunction on September 10, 2018. PKL, in turn, filed its Opposition to the Preliminary Injunction on September 14, 2018, with a Reply by Al Raha filed a few days later. The three-member arbitral panel was appointed on October 8, 2018, but stayed all arbitral proceedings pending the resolution of the motions before the District Court. The District Court, however, did not rule until September 6, 2019. The parties thus waited in limbo for almost a year after the motion was filed for the District Court's ruling; all the while PKL refused to comply with the Emergency Award.
Ultimately, the District Court sided with PKL, finding that it lacked subject matter jurisdiction because the Emergency Award was "a placeholder that did not purport to resolve finally any of the issues submitted to arbitration." Al Raha, No. 1:18-cv-04194 at *3. The Emergency Arbitrator herself made clear, the District Court said, that the Emergency Award was not a final award by stating that she was preventing the termination of the contract "pending constitution of the full arbitral tribunal that will be appointed to hear the case on the merits." Id. The District Court emphasized that "although district courts have original jurisdiction over any action or proceeding falling under the [New York] Convention, they lack authority to confirm arbitral awards that are not final." Id. at * 2 (internal citations omitted). "An interim ruling from an arbitrator is not a final award if it does not purport to resolve finally the issues submitted to the arbitrators. . . . An interim ruling may be considered sufficiently final if it finally and definitely disposes of a separate and independent claim even if it does not dispose of all the claims that were submitted to arbitration." Id. (internal citations omitted). Ultimately, the District Court found that the Emergency Award did not resolve any of the issues submitted to arbitration, but merely sought to preserve the status quo pending arbitral proceedings, and therefore was not a final award which could confer subject matter jurisdiction on the District Court.
The Broader Perspective on Enforcement of Interim Awards in USA
While Al Raha is the first case to deny enforcement of an emergency award, it is not the first case to address emergency arbitration or interim awards in the USA.
In
Yahoo! Inc. v. Microsoft Corp., the U.S. District Court for the Southern District of New York addressed an emergency arbitrator's order in a slightly different context-there the losing party was seeking to vacate the award by arguing that the emergency arbitrator exceeded his authority by issuing an award that was "irreversible" and thus "final." 983 F.Supp.2d 310 (S.D.N.Y. 2013). In this case, however, the court determined that the emergency arbitrator had the authority under the specific contract provisions in the case to enter a "final" award. In the contract, the parties had specified that the emergency arbitrator could compel and award specific performance and provide for "non-monetary relief necessary to restore the status quo" between the parties. The court determined that under the specific agreement, "the Arbitrator acted within his authority in granting an injunction . . . even though the equitable relief that was granted is, in essence, final." Id. at 317.
Similar to the Yahoo! case, in
Chinmax Medical Systems Inc. v. Alere San Diego, Inc., the U.S. District Court for the Southern District of California refused to vacate an emergency arbitration award, although the basis for the court's refusal to vacate in Chinmax was that the emergency award was not final because it could be reviewed by the full arbitral panel under the ICDR Rules. 2011 WL 2135350 (S.D. Cal. 2011).
Circuit Courts reviewing interim awards issued by the arbitral tribunal, however, have frequently viewed such interim awards as final and enforceable by courts. The Ninth Circuit has stated that "temporary equitable orders calculated to preserve assets or performance needed to make a potential final award meaningful . . . are final orders that can be reviewed for confirmation and enforcement by district courts under the FAA." Pacific Reinsurance Management Corp. v. Ohio Reinsurance Corp., 935 F.2d 1019, 1023 (9th Cir. 1991). The Sixth Circuit has also upheld an interim order where one of the parties was "required to perform the contract during the pendency of the arbitration proceedings," finding that this "issue is a separate, discrete, independent, severable issue" from consideration of the merits of the claim. Island Creek Coal Sales Co. v. City of Gainesville, Fla., 729 F.2d 1046, 1049 (6th Cir. 1984), abrogated on other grounds by Cortez Byrd Chips, Inc. v. Bill Harbert Const. Co., 529 U.S. 193 (2000).
In sum, courts considering emergency awards have refused to vacate them (on the merits in Yahoo! and on jurisdictional grounds in Chinmax). And courts have generally enforced interim awards rendered by the full arbitral tribunal where they may be viewed as preserving assets or performance and may be seen as severable from the award on the merits of the case. But as the Al Raha case (and to a lesser extent the Chinmax case) shows, enforcing an emergency award may not be possible under rules-such as the ICDR, ICC, SIAC, or HKIAC Rules-that allow for the full arbitral tribunal to revisit any decision made by the emergency arbitrator.
The Impact of Non-Enforcement of Emergency Arbitral Awards
Despite these enforcement issues, it is likely that most parties will continue to voluntarily comply with emergency arbitral awards. That is because the full arbitral tribunal is unlikely to look kindly upon a party's refusal to comply with emergency arbitrator orders. So, a party refusing to comply may strongly prejudice its case on the merits.
But there are some cases-particularly involving intellectual property disputes-where the preliminary injunction is the central issue. If there is a non-disclosure agreement that the other party is threatening to breach, damages awarded months or years later by a final arbitral award may be wholly insufficient to compensate for the public release of confidential documents or trade secrets. Ultimately, in cases where there is a need to depend on enforcement of a preliminary injunction, parties should continue to include the ability to seek injunctive relief before national courts-and cannot for the time being rely upon institutional rules to achieve similar objectives.
Ultimately, part of this problem may be solved by carefully drafting emergency arbitration provisions to allow for an emergency arbitrator to issue a "final" award on certain issues, even if such relief is only temporary. Under Article 6 of the ICDR Rules, the emergency arbitrator "may modify or vacate the interim award or order" at any time, and once the arbitral tribunal is constituted, "the tribunal may reconsider, modify, or vacate the interim award or order of emergency relief issued by the emergency arbitrator." By definition, then, the ICDR Rules contemplate that the emergency relief is not final and may be modified or changed at any time. If, however, the emergency arbitrator's award were described in the rules as a "final award effective until 2 business days following the first conference of the constituted arbitral tribunal," then that would provide a specific time period for which the emergency arbitrator's award would be effective for, and allow the arbitral tribunal to continue the emergency award as an interim award-either for a specific time or for the duration of the arbitration-following its first procedural conference with the parties.
For now, however, given the court decisions coming out refusing to enforce emergency awards, parties should be very careful about relying on emergency arbitral proceedings to protect their rights. One way to solve the issue is to adopt specific contractual language-as in the Yahoo! case-allowing emergency arbitrators to issue "final" awards maintaining the status quo between the parties pending the resolution of the disputes by the full arbitral tribunal.
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January 14 2020
I have to confess something: I just returned from sunny California where I attended an excellent arbitrator training course put on by the American Arbitration Association and run by Dana Welch and Michael Powell! If you have an opportunity to take a course from either of them, I highly recommend it.
And, as it so happens, you can! Check out my
prior announcement of the ABA's Arbitration Institute this March in Phoenix. Dana Welch will be there along with a number of other exceptional instructors. I'll give you a more formal reminder soon, but it's well worth your time to think about attending if you can. (The Early Bird registration ends on February 1, so think about it soon.)
Anyway, speaking of confessions and Arbitration 101 . . . in catching up on my arbitration cases on the plane ride home, I read a recent and cautionary tale by Ninth Circuit about disclosures.
The underlying dispute doesn't matter much, but, in brief, Monster terminated a distribution agreement with its franchisee. The franchisee protested under Washington law, and Monster initiated arbitration administered by JAMS.
The important stuff starts with the arbitrator's disclosure: "Each JAMS neutral, including me, has an economic interest in the overall financial success of JAMS. In addition, because of the nature and size of JAMS, the parties should assume that one or more of the other neutrals who practice with JAMS has participated in an arbitration, mediation or other dispute resolution proceeding with the parties, counsel or insurers in this case and may do so in the future."
Getting no objections from the parties about partiality after this disclosure, the arbitrator went on to consider the merits and ruled against the franchisee. Monster sought to confirm the award, but the franchisee cross-petitioned for vacatur. The franchisee had learned that the arbitrator was a co-owner of JAMS. (According to the Ninth Circuit, only about 1/3 of all JAMS Neutrals have such an ownership interest.) It also found out about the much more robust relationship between JAMS and Monster than the arbitrator had revealed. The district court confirmed the award, but the Ninth Circuit reversed and vacated.
Particularly significant to the outcome was the fact that JAMS had repeat business with Monster. The court noted that "[c]lear disclosures by arbitrators aid parties in making informed decisions among potential neutrals. These disclosures are particularly important for one-off parties facing 'repeat players.'" The decision then cited to a study by Professor Lisa Bingham showing that employees disproportionately failed to recover damages against repeat-player employers compared to non-repeat-player employers. See
Lisa B. Bingham, Employment Arbitration: The Repeat Player Effect, 1 Emp. Rts. & Emp. Pol'y J. 189, 209-17 (1997). The dissenting Judge goes even further in recognizing the importance of the repeat player effect to the outcome of the case: "arbitrators have incentives to make decisions that are viewed favorably by parties who frequently engage in arbitrations. This feature of private arbitration, even if distressing, is an inevitable result of the structure of the industry."
The moral of the story: Arbitrators should disclose. Disclose everything. If you, as an arbitrator, think of something and wonder if you should disclose it, disclose it. If it crosses your mind, disclose it. That might seem extreme, but as the court points out, "[i]t is simplicity itself, and no real burden, for an arbitrator to disclose his or her ownership interest in an arbitration company for which he or she works, as well as the organization's prior dealings with the parties to the arbitration."
That reminder about the importance of disclosure aside, I want to close by taking a moment to think more about the so-called repeat player effect, especially based on studies in the employment context. While evident partiality is, in large measure, about the reasonable impression of bias, and it seems pretty clear that repeat player concerns can create such an impression, the existence and magnitude of any repeat player effect in arbitration has not been decisively established.
In fact, there's been a lot of debate among academics about this effect. While the notion has some intuitive appeal, the empirical jury is still out (pardon the metaphor in an arbitration blog).
See, e.g., Estreicher, Samuel and Heise, Michael and Sherwyn, David, Evaluating Employment Arbitration: A Call for Better Empirical Research, 70 Rutgers U. L. Rev. 375, 386-87 (2018). For instance, the repeat-player studies usually make no attempt to control for the size and claims experience of repeat-player employers. Larger employers have more resources and experience. Employees are likely to fare worse against these employers as compared to smaller employers with fewer resources and less claims experience regardless of whether the claim is brought in court or before an arbitrator. More importantly, strong cases on the merits are likely to settle and never reach a hearing. So, win rates for employers with repeated cases that go to award should be high.
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In an effort to recognize the specialization in the ADR community, we are creating 3 separate newsletters broadly covering these areas: Mediation - Arbitration - International ADR.
A newsletter focused in one of those areas will be sent out bi-monthly. In order for you to subscribe to as many types of newsletters that fit your particular practice/interests, please click on the Update Profile/Email Address link at the bottom of this email. From there you will be able to select which newsletters you wish to receive or if you would like to opt out all together.
Thank you for reading my newsletter, and as always, if you have any questions on any of the articles listed, do not hesitate to contact me.
Sincerely,
Thomas P. Valenti
350 W. Hubbard St.,
Suite 630
Chicago, IL 60654
T: 312-925-0081
F: 888-667-2485
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