The Courts of Appeals provided the interesting cases over the last couple of days as they addressed issues under FISA and the FAA. On the SCOTUS front, the Court has the cert. petition in Shivkov v. Arlex, Dkt. No. 20-1313, addressing whether merely selecting the AAA as an arbitral institution invokes competence-competence principles, scheduled for conference on Friday. So, more to come on that next week.
Confirming awards; Foreign Sovereign Immunity Act
In an action reviewing the dismissal of an action to confirm an international arbitration, the Second Circuit addresses jurisdiction over a foreign sovereign. -3747, 19-4017, -4021, 19-4147 Gater Assets, Ltd. v. AO Moldovagaz, 2021 U.S. App. LEXIS 18497 (2nd Cir. June 22, 2021) is the result of a series of alleged violations by a company affiliated with the nation of Moldova to pay for supplies purchased from Gazprom, the Russian natural gas producer. That failure started a whole trail of contracts, treaties, insurance coverages, and assignments which ultimately resulted in an arbitration award in the amount of $8.5M against the affiliate, followed by a 2000 default judgment confirming the award against both the affiliate and the Republic. (If you want to understand the various relationships, bring a pencil, an eraser, and a large piece of graph paper). As the 20-year term to enforce the judgment was about to expire, plaintiff brought an action on the judgment in the District Court, thus seeking to start a new limitations period. This time the Republic and affiliate appeared and challenged the court’s jurisdiction. The District Court held that the affiliate, Moldovagaz, was an alter ego of the Republic and that the Republic itself was not immune under FSIA; it granted plaintiff’s request for the renewal judgment.
FISA generally provides that foreign entities are immune from jurisdiction in federal and state courts unless the claim falls within one of several exceptions. The gravamen of the opinion by Circuit Judge Raggi, writing for herself and Circuit Judges, Sullivan and Menashi, is the question of whether this matter falls within the exception for actions “to confirm an award made pursuant” to a qualifying “agreement to arbitrate” that was “made by the foreign state.” Since the contract was signed by the affiliate and it nowhere indicated that the Republic itself was a party thereto, the exception would only apply if Moldova was a direct beneficiary of that relationship. The court’s holding that no such direct benefit arose is fact-intensive; you need to read the case to grasp its nuances. Broadly, the Court of Appeals holds that, since the Republic did not invoke the affiliate’s agreement to fulfill its obligations under a related treaty, there were no direct benefits to the sovereign, even though its citizens obtained gas as a result of the agreements. Therefore, the Court of Appeals reverses the District Court’s judgment for plaintiff in the renewal action and remands with instructions to dismiss for lack of jurisdiction.
As precedent, outside the area of international litigation, the case is most interesting for its discussion of the U.S. Supreme Court’s decision in GE Energy Power ConversionFrance SAS, Corp. v. Outokumpu Stainless USA, LLC, 140 S. Ct. 1637 (2020). The panel distinguishes GE Energy, in part, based on that decision’s application of estoppel to allow a non-signatory to compel arbitration by a signatory, while, here, the obverse situation exists – the signatory seeks to use the agreement against a nonsignatory. “GE Energy did not consider, much less compel, the extension of direct benefits estoppel to confer jurisdiction in a case like the one before us.” It will be interesting, as case law develops under this fairly recent SCOTUS precedent, to see how narrowly the Second Circuit interprets it.
Adjournment under the New York Convention
In another international arbitration case, the District Court addresses the grounds for adjournment of an action to confirm an arbitration under the New York Convention, Aop Orphan Pharmaceuticals AG v. Pharmaessentia Corporation, 2021 U.S. Dist. LEXIS 114526 (D. Mass. June 18, 2021). Plaintiff brought the action to enforce an ICC arbitration award in the amount of €142.221.201 (approximately $169,600,000) and sought an equitable attachment. Defendant (“PEC”) moved to adjourn the proceedings, obtain jurisdictional discovery, and dismiss for lack of personal jurisdiction.
The bulk of the case deals with personal jurisdiction and is beyond the scope of “Highlights.” However, for arbitration fans, the case addresses the standard for adjournment of actions to confirm. Judge Wolf applies the Second Circuit’s test in Europcar Italia, S.p.A. v. Maiellano Tours, Inc., 156 F. 3d 310 (2nd Cir. 1998) – the general objectives of arbitration, the status of the foreign proceedings and the time to their resolution, the relative degrees of scrutiny of the award in the U.S. and abroad, the characteristics of the foreign proceedings, and the ever-present balance of hardships. He finds that those factors favor denial of the adjournment, opining that the following factors drive that decision. A German court of first instance had already denied a set-aside motion and the German appellate court may take a year or more to resolve the appeal. Plaintiff’s action seeks prejudgment relief which could be mooted by delay. Finally, this case was brought before the filing of the German set-aside litigation and, therefore, considerations of comity do not compel a delay pending that court’s decision. He denies the motion to adjourn.
One sentence of the case dealing with the timing of the motion for adjournment in the face of a motion to dismiss for lack of jurisdiction is worth sticking aside for future reference. Citing Sinochem International Co. v. Malaysia International Shipping Corp. 549 U.S. 422 (2007), Judge Wolf opines that since adjournment “is not an issue involving the merits of the case, [it] may be addressed before any other issue – including personal jurisdiction – is resolved.”
Choice of laws on claim-preclusion
Daredevil, Inc. v. ZTE Corp., 2021 U.S. App. LEXIS 18153 (8th Cir. June 18, 2021), mostly deals with the law of claims preclusion. For arbitration practitioners, it is relevant as a discussion of the choice-of-laws issues raised in preclusion cases. Plaintiff sued ZTE USA, a subsidiary of the defendant, for breach of contract, fraud, and unjust enrichment. The matter went to arbitration in Florida. After denying Daredevil’s request to add the defendant here, ZTE Corp., to the arbitration, the arbitrator found against Daredevil. The U.S. District Court for Florida confirmed the award, and that judgment was affirmed by the 11th Circuit. Plaintiff had filed this case in the Eastern District of Missouri against ZTE Corp. asserting the same claims as were raised against its subsidiary in the arbitration. ZTE Corp. claimed Daredevil’s claims were precluded by that arbitration. The District Court agreed and granted summary judgment for defendant. The Eighth Circuit, Chief Circuit Judge Smith writing for himself and Circuit Judges Kelly and Erickson, affirms.
The Court first examines whether, under applicable choice-of-laws doctrines, Florida or Missouri law governs claim preclusion. It holds that federal common law , as developed in the Eighth Circuit, provides that, in a diversity case, the law of the state of first judgment applies. Since the arbitration award was granted in Florida and confirmed in Florida, the Court holds that law of that state governs. In an important footnote, the court goes out of its way to opine in dictum that Florida law would still apply even if the arbitral award stood alone and the federal court had not confirmed it. So, for practitioners, Daredevil highlights one more consideration to put on the checklist as you negotiate arbitration venue, particularly where you are seeking to resolve cases with multiple parties which are already in litigation. If a potentially responsible entities (Party A) cannot be included in an arbitration against a related party (Party B), what state’s law might allow you to still assert a claim against A if you lose the arbitration against B? Can you venue your arbitration in that state?
Last mile drivers; appellate jurisdiction
In Hamrick v. Partsfleet, LLC, 2021 U.S. App. LEXIS 18488 (11th Cir. June 22, 2021), the Eleventh Circuit (Luck, J., writing for himself and Judges Branch and Ed Carnes) joins the discussion over the scope of the transportation worker exception to the Federal Arbitration Act. The legal underpinning of the issue is well-plowed in earlier “Highlights” and elsewhere. The FAA exempts arbitration agreements in “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” from its coverage, 9 U.S.C. § 1. The recurrent issue is what workers are “engaged in . . . . interstate commerce.”
Hamrick was a delivery driver who used his own car to deliver auto parts from defendants’ Tampa and Lakeland warehouses to its customers. The deliveries were probably all intrastate, but the products in the warehouse came from outside Florida. Hamrick claimed that, although defendants categorized him as an independent contractor, he was an employee; he sought overtime and other compensation under the Fair Labor Standards Act. Defendants moved, under both the FAA and the Florida arbitration act, to compel arbitration under the terms of an “independent contractor agreement” which Hamrick signed at the time he started working. The District Court denied the motion, concluding that Hamrick was an exempt “transportation worker” under the FAA because the products he delivered were in the flow of interstate commerce and that an order compelling arbitration was not appropriate under the state act. (Since the Court of Appeals dismisses the appeal of the state law portion of the decision for lack of jurisdiction, there is no detail as to the reason for the District Court’s action thereunder).
The Court joins those holding that the “transportation worker” exemption is decided based upon the activity of the worker, not the source of the product delivered. In support thereof, the panel relies upon the Circuit’s earlier decision in Paladino v. Avnet ComputerTechnologies, Inc., 134 F. 3d 1054 (11th Cir. 1998).  In doing so, it establishes a two-part test for determining whether a worker falls within the exemption. First, is the worker part of a “class of workers ‘employed in the transportation industry?’” Second, does he or she “actually engage in the transportation of goods in interstate commerce?” To reach its conclusion, the panel discusses at length the U.S Supreme Court’s holding in Circuit City Stores, Inc. v. Adams, 532 U.S. 105 (2001) and distinguishes authorities interpreting the phrase “in interstate commerce” as used in the Fair Labor Standards Act, see Walling v. Jacksonville Paper Co., 317 U.S. 564 (1943), and the Motor Carrier Act, see Walters v. American Coach Lines of Miami, Inc., 575 F. 3d 1221 (11th Cir. 2009) based upon the difference in the statutes’ “contexts.” The panel reverses the District Court’s judgment dismissing the motion to compel under the FAA and remands for a factual hearing on Hamrick’s specific job functions.
As is often the case, the defendant moved to compel arbitration under both the FAA and state arbitration law, in this case Florida’s act. The District Court dismissed claims under both statutes and this appeal followed. In the second portion of its opinion, the Court of Appeals discusses whether it may resolve the dismissal of the state claims and holds that it lacks subject matter jurisdiction. While the FAA allows an interlocutory appeal from the denial of an application to compel arbitration, there is no such provision exempting the state claims from the normal “final judgment” rule. Therefore, unless the court had pendent appellate jurisdiction over the state claims, the appeal related thereto was premature. The court holds that such pendent jurisdiction arises only where the non-appealable issues are “inextricably intertwined or inextricably interwoven with the issue on appeal.” (Emphasis added). The court opines that they are not so linked. The issues as to the applicability of the state statute center on whether the independent contractor agreement incorporated state law and whether the parties intended to arbitrate under state law even if the FAA was inapplicable; the court holds that there is “no factual overlap” between those issues and what it considers the relevant question under the FAA – whether the driver was engaged in the interstate transportation of goods. Accordingly, it dismisses the appeal of the state issues for lack of appellate jurisdiction.
I have a good friend who claims that summer “ends” on the Fourth of July. While that may be unduly pessimistic, the reality is that here in the Northern Hemisphere, the daylight hours are now getting shorter. Somehow, though, with the world reopening as the pandemic in the U.S. wanes, everything seems brighter. Be safe.
David A. Reif
 There is an important footnote for those relying upon Paladino as authority. The court opines that the concurring opinion by Judge Cox, joined by Judge Tjoflat, rather than the “lead” opinion by then-Chief Judge Hatchett, “reflects the holding of the court.” The difference between the reasoning of those two opinions is beyond the scope of this blog, but is important reading for those faced with the “transportation worker” exception who may want to cite to Eleventh Circuit authority .