Today’s cases focus on the mechanics of entering into an arbitration agreement and enforcing an award. Plus, we get a chance to focus a little more than usual on the New York Convention.
Although American Institute for Foreign Study, Inc. v. Fernandez-Jimenez, 2021 U.S. App. LEXIS 20420 (1st Cir. July 9, 2021), does not break any new ground, it is worth reading because it comes from a Court of Appeals. Circuit Judge Lynch, writing for herself, Circuit Judge Kayatta, and District Judge Laplante, sitting by designation, reaffirms that a court must “presume that parties have not agreed to class arbitration without ‘an affirmative “contractual basis for concluding otherwise, “’” citing Stolt-Nielsen S.A. v. Animal Feeds International Corp., 559 U. S. 662 (2010). Holding that an agreement that any claim “will be exclusively resolved by binding arbitration, to be conducted in substantial accordance with the commercial arbitration rules of the American Arbitration Association. . . .” does not meet that standard, the court affirms the District Court’s preliminary injunction against class arbitration. (The parties agreed that Ms. Fernandez-Jimenez’s individual claims were subject to arbitration).
Two issues which the court found that plaintiff waived are worth consideration by counsel for plaintiffs in cases such in which they wish to proceed through class arbitration. First, who makes the determination as to classing, the court or the arbitrator? Second, does invocation of the AAA’s rules implicitly authorize class certification, since the Association has promulgated Supplementary Rules for Class Arbitration. The answers will depend upon applicable law and specific contract language.
Service of an application to confirm arbitration
Commodities & Minerals Enterprises, Ltd. v. CVG Ferrominera Orinoco, C.A., 2021 U.S. Dist. LEXIS 127076 (S.D. Fla. July 8, 2021) addresses the difference between serving an application to confirm arbitration awards under the New York Convention and under the Federal Arbitration Act. Petitioner obtained an award in its favor against the Respondent. The procedural history of the matter has some twists, but the court ultimately addresses the question of whether a summons must accompany an application to confirm where relief is sought under the Convention. While the use of a summons is not required under the FAA, the court, Gayles, J., holds that, since the Respondent is an instrumentality of a foreign state and the FAA is silent as to service upon such entities, the Federal Rules of Civil Procedure govern. Rule 4(f) thereof provides that a foreign instrumentality “must be served in accordance with 28 U.S.C. § 1608.” Each of the subsections of that provision requires that a summons be served. The court rejects arguments that “substantial compliance” with service requirements or actual notice by Respondent of the pendency of the petition is sufficient to excuse deviations from the requirements of Section 1608. Judge Gayles vacates her previous order confirming the award and orders Petitioner to again serve the petition, this time with a summons. Although the time limits under the Convention were not an issue here, counsel need to particularly careful, since dismissal of a petition for failure to make proper service thereof could result in a time bar and inability to enforce the award.
The meaning of “may”; ineffective vindication
PPT Research, Inc. v. Solvay USA, Inc., 2021 U.S. Dist. LEXIS 127031 (E.D. Pa. July 7, 2021), arises out of a dispute over technology licensing. The parties entered into two agreements with slightly different arbitration clauses. Their Reciprocal Confidentiality Agreement provided that any dispute that could not be resolved amicably “shall be finally settled under the Arbitration Rules” of the International Chamber of Commerce in Delaware. The Technology Licensing Agreement provided that any disputes “arising out of or relating to this Agreement” “may be submitted to arbitration” before that body, although the same paragraph later provided that disputes “arising in connection with this Agreement” “shall” be so resolved. PPT sought to parse disputes between various categories, arguing that the claims here fall into a classification under which arbitration is optional. The court, Schmel, J., rejects the argument. “May,” he holds, does not mean that arbitration is permissive; rather, it gives “either party the power to elect to proceed to arbitration”. Once such an election is made, arbitration becomes mandatory.
The case is also a useful exploration of the concepts underlying “effective vindication.” The Third Circuit, Judge Schmehl opines, has held that, where the arbitration provision “makes the arbitral forum prohibitively expensive to a weaker party,” the provision is unenforceable, quoting Parilla v. IAP Worldwide Services IV, Inc. 368 F. 3d 269, 284 (3rd Cir. 2004). As the court recognizes, this concept is usually invoked in employment or consumer arbitrations involving individual claimants. “[T]he Court has been unable to locate nor has PPT cited to a single case where a sophisticated corporate entity advised by counsel before signing an arbitration cluse has successfully used the effective vindication rule to avoid the effects of a bargained for arbitration clause.” Nor does the court apply the doctrine here, although it makes some interesting observations. First, Judge Schmehl opines that the purported unwillingness of Plaintiff’s litigation funder to pay for an arbitration is irrelevant to his considerations. Second, he observes that he finds it “disingenuous” that PPT, while claiming financial distress, would opt for “costly federal court litigation,” when arbitration is “generally considered a quicker and less expensive alternative. . . .”
Enforceability of arbitration clauses contained in invoices
Like Commodities & Minerals, supra, Harren & Partner Ship Management de Mexico S.A.P.I. v. America Bureau of Shipping, 2021 U.S. Dist. LEXIS 127501 (S.D.N.Y. July 7, 2021), arises under the New York Convention and relates to an arbitration before the Society of Maritime Arbitrators. The issue here is what formalities are necessary to form an agreement to arbitrate. Judge Schofield holds that, to be enforceable under the Convention, a provision mandating arbitration must be an “agreement in writing” which is “signed by the parties or contained in an exchange of letters or telegrams.” In this case, the arbitration agreement was only incorporated by reference in invoices provided to Harren and Partner after ABI provided its services. Citing numerous cases across jurisdictions, the court holds that timing to be inadequate to invoke the Convention. Finding that Petitioners would be irreparably harm by spending time and resources “arbitrating an issue that is not arbitrable, and for which any award would not be enforceable,” Judge Schofield enjoins arbitration of the claim.
Evidence in support of an electronic on-boarding arbitration agreement
While Slade v. Empire Today, LLC, 2021 U.S. Dist. LEXIS 127498 (S.D. Cal. July 8, 2021), is great fodder for teaching summary judgment to a Civil Procedure class, it also provides a path for those seeking to prove an employee’s execution of an arbitration clause. Slade was an operations manager for Defendant Empire Today. He asserted various claims arising out of alleged discrimination based upon disability. Defendant moved to compel arbitration based upon an agreement which plaintiff allegedly signed as part of an electronic-onboarding process. Judge Sabraw disposes of fairly routine claims of both procedural and substantive unconscionability and illusoriness for which I will just refer you to the opinion. The interesting part for practitioners is the court’s consideration of the opposing evidence related to the existence of an agreement. Defendant introduced extensive electronic footprints purportedly showing Slade’s completion of the agreement, including his electronic signature, a password and a unique eSign ID. In response, Plaintiff raised only an arguable difference between the date on the electronic agreement and the date on which Empire claimed he signed. The court accepts Defendant’s explanation of the difference, holding that “no reasonable factfinder could find for Plaintiff on the basis of the evidence presented to the Court,” effectively weighing the evidence. Thus, Slade is a reminder that, in determining whether a court may grant an application to compel arbitration summarily or must hold a full evidentiary hearing, it is not enough for plaintiff to raise some minor, ephemeral question of fact. The disagreement must be both material and genuine.
As a fan of real baseball, the kind where pitchers have to get up to the plate, I was disappointed in the results of the All-Star game. But, as a life-long Pittsburgh Pirates rooter, I am used to disappointment and cries of “wait until next year.” See you Friday.
David A. Reif