Today’s lead is a major decision out of the Ninth Circuit dealing with the choice of law in actions to compel. Both the majority opinion and dissent are important reading. Also, there are decisions on the arbitration of bankruptcy matters and mutuality, along with the usual quick hits.
Choice of laws
Setty v. Shrinivas Sugandhalaya LLP, 2021 U.S. LEXIS App. 1490 (9th Cir. Jan. 20, 2021) considers the choice of law in an action seeking to compel arbitration where the District Court’s jurisdiction is based on a federal question, rather than the more common diversity.
Some background is needed to understand the case. The matter arises out of a dispute between two brothers who were previously joint owners of a family incense manufacturing company. Their relationship was allegedly governed by a Partnership Deed, executed in Mumbai, India, which contained an arbitration clause. Thereafter, they decided to set up their own companies and, ultimately, became involved in this litigation over the use of trademarks in the U.S. On the plaintiffs’ side, the parties are one company, SS Bangalore, and its brother-owner. On the defendant side is the other brother’s company, SS Mumbai, and a U.S. Distributor; the brother-owner of SS Mumbai is not a defendant. SS Mumbai moved to compel arbitration based on the arbitration clause in the Partnership Deed. Since that agreement was signed by the brothers individually before they formed their own companies, neither SS Mumbai nor SS Bangalore is a signatory thereto; however, SS Mumbai claimed the right to compel arbitration under the doctrine of state law equitable estoppel.
In an earlier decision in the case, Setty v. Shrinivas Sugandhalaya LLP, 771 Fed. App’x 456 (9th Cir. 2019), the Ninth Circuit, in a memorandum opinion issued by the same panel as rules here, affirmed the District Court’s denial of arbitration, holding that the New York Convention does not allow non-signatories to compel arbitration and that, to the extent the Federal Arbitration Act might be viewed as permitting such arbitrations by reason of equitable estoppel, the Convention trumps the FAA. SCOTUS vacated that earlier judgment and remanded the case for consideration under its holding in GE Energy Power Conversion France SAS v. Outokumpu Stainless USA, LLC, 140 S.Ct. 1637 (2020), See Shrinivas Sugandhalaya LLP v. Setty, 207 L. Ed. 168 (2020). This case arises from that remand.
Writing for herself and Judge Rawlinson, Judge Nelson reaffirms the panel’s earlier mandate. In a short opinion, she opines that federal common law, not the law of India or any state jurisdiction, determines whether a non-signatory may compel arbitration. Relying on the Seventh Circuit’s earlier opinion in Letizia v. Prudential Bache Securities, Inc. 802 F. 2d 1185 (9th Cir. 1986), she opines that “we apply ‘federal substantive law’ for which we look to ‘ordinary contract and agency principles,’ in determining the arbitrability of federal claims by or against nonsignatories to an arbitration agreement.” The majority distinguishes potentially contrary precedent on the basis that those cases involved diversity jurisdiction, whereas plaintiffs’ federal trademark claims invoke federal question jurisdiction. Opining that SS Bangalore’s claims against SS Mumbai are not “clearly ‘intertwined’ with the Partnership Deed,” the majority, then, holds, as a matter of federal common law, that the trial court “did not abuse its discretion” in rejecting SS Mumbai’s equitable estoppel claim. It again affirms.
The dissent by Circuit Judge Bea outlasts the majority opinion by twenty-one pages. He opines that GE Energy stands for the proposition that “nonsignatories to New York Convention-governed arbitration agreements are now authorized to compel arbitration using domestic contract doctrines.” Refusing to limit that SCOTUS authority to cases of diversity jurisdiction, he would hold that “an equitable estoppel claim to compel arbitration is brought pursuant to FAA Chapter 1, which requires that state contract law (or in the case of a foreign contract, the foreign state’s contract law) governs the issue [of equitable estoppel]” regardless of the source of federal jurisdiction. Thus, he opines, SCOTUS in GE Energy “effectively abrogated” Letizia. Having determined that state or foreign law provisions, not some federal common law principle, apply, Judge Bea discusses at length applicable conflict of laws doctrine. However, this may simply be lengthy dictum, as he ultimately concludes that the Circuit should remand the case to the District Court so that court may determine what law applies to issues of both choice of law and equitable estoppel.
The only way to really understand this case is to read the opinion, its predecessor, Letizia, and GE Energy. But anyone who has or may have a New York Convention case involving equitable estoppel claims needs to do so. It may well be seminal. It will be interesting to see if the Circuit takes the case en banc or SCOTUS uses it to explore the issues which Justice Thomas left open when he wrote, “Because the Court of Appeals concluded that the Convention prohibits enforcement by nonsignatories, the court did not determine whether GE Energy could enforce the arbitration clauses under principles of equitable estoppel or which body of law governs that determination. Those questions can be addressed on remand,” GE Energy at 1648 (Emphasis added.)
Arbitration in Bankruptcy
In re: Cuker Interactive, LLC, 2021 U.S. Dist. LEXIS 10519 (S.D. Cal. Jan. 20, 2021) is an appeal in an adversary proceeding between Pillsbury, Winthrop, Shaw, Pittman, LLP and the debtor arising out of unpaid fees for litigation in which Pillsbury represented Cuker against Walmart. To secure its fees, Pillsbury asserted an attorney’s lien on Cuker’s proceeds of the judgment, so advised Walmart, and filed a bankruptcy proof of claim in the amount of approximately $1.6 million. Cuker, thereafter, filed an adversary action to determine whether Pillsbury’s claim was secured or unsecured; in response, Pillsbury sought to compel arbitration of the issue under the terms of its engagement letter with Cuker. The Bankruptcy Court refused to compel, holding that the lien dispute was not within the scope of the arbitration agreement; that the agreement did not contemplate competence-competence; and that, even if the dispute were arbitrable under the agreement, the court was exercising its discretion to retain jurisdiction over the question. The District Court, Bencivengo, J., only finds it necessary to address the third issue. Citing In re: EPD Investment Co., LLC, 821 F.3d 1146 (9th Cir. 2016), it holds that three factors should be considered in reviewing the bankruptcy judge’s action – having the Bankruptcy Court, rather than an arbitrator, rule on bankruptcy disputes; centralizing the resolution of such disputes; and avoiding piecemeal litigation. Without any discussion, the court finds that the Bankruptcy Court considered those factors and, as its ruling thereon was not “illogical, implausible, or without support of the record,” there was no abuse of discretion. The Court affirms.
In an arbitration agreement, what is good for the goose need not be good for the gander. Greene v. Jefferson Capital Systems, LLC, 2021 U.S. Dist. LEXIS 11660 (D. N.J. Jan. 15, 2021) arises from plaintiff’s claim that defendant violated the Fair Debt Collection Practices Act. Jefferson Capital moved to compel arbitration. The case involves standard issues related to enforcement of an arbitration agreement by an assignee, scope, and contract formation. Its interest lies in the response by the court, McNulty, J., to Greene’s argument that the provision was substantively unconscionable because it permitted the creditor to pursue an action in court, but relegated the debtor to arbitration. Citing Edwards v. HOVENSA, LLC, 497 F.3d 355 (3rd Cir. 2007), the court adopts the NBA “no blood, no foul” rule and compels arbitration, finding that the agreement “does not limit Ms. Greene’s remedies, but only prescribes the forum in which she can pursue her claims.” Well, query (there is that lawyer word, again) – Is an appeal from an adverse decision a “remedy” and, if so, is not the scope of relief available to Ms. Greene far more “limited” in arbitration than in litigation, considering the deference given an arbitrator’s decisions?
Tecnocap, LLC. v. United Steel Workers, 2021 U.S. App. LEXIS 1396 (4th Cir. Jan. 19, 2021), Wilkinson, Agee, and Richardson, C.J., is a routine case affirming the District Court’s confirmation of a grievance arbitration award. The interesting part of the case is the message in dictum:
“As this recitation of Tecnocap’s arguments reveals, it wanted the district court – and now us – to vacate the arbitrator’s award because it disagrees with the result of a course it agreed to and which was designed to avoid prolonged litigation. . . This genre of almost-reflexive appeal of arbitration awards seems to be an increasingly common course, leading to arbitration no longer being treated as an alternative to litigation, but as its precursor.” (Emphasis in original)
Disqualification of an arbitrator
Christie’s Inc. v. Turner, 2021 U.S. Dist. LEXIS 12334 (S.D.N.Y., Jan. 22, 2021) involves the issue of arbitrator conflicts. After the hammer fell on a sale she found unsatisfactory, Defendant sought to cancel her authorization for Christie’s to auction a painting by Rubens. After losing in a resulting arbitration, she opposed Christie’s petition to confirm, arguing, in part, that the arbitrator had a financial interest in the arbitral administrator, JAMS, and that Christie’s is a large JAMS client. The court, Buchwald, J., rejects the claim, citing Circuit authority holding that an arbitrator is not disqualified “by having received compensation from one of the parties for past service as a party-appointed arbitration” [citation omitted]. Accordingly, she holds, a party’s repeated use of an arbitral organization does not create an impermissible conflict of interest. Note that the arbitrator here timely disclosed his interest in JAMS, so that Turner could address the alleged conflict during the arbitration. Thus, the case reiterates the bottom line for arbitrators – disclose, disclose, disclose. Surprises are what cause troublesome conflict issues.
The Supreme Court still seems reluctant to specifically rule on whether incorporation of a tribunal’s rules which authorize an arbitrator to decide his or her own jurisdiction is sufficient to demonstrate the parties’ “clear and manifest” intention to delegate gateway issues. On Friday, it denied cert. in Piersing v. Domino’s Pizza Franchising, LLC, Dkt. No. 20-695, which directly raised that question.
To those of you following the Bills’ unlikely run toward the Super Bowl, my condolences. And to those Patriot fans still mourning the loss of Tom Brady, you have some more ammunition for your grievance. See you Wednesday.
David A. Reif