The courts are apparently catching up from the holidays, and there were a lot of decisions over the last three days. In order to cover as many cases as possible, this edition of the blog is a series of Quick Hits, rather than in-depth discussions of a couple of cases. I hope today’s format works for you.
New York Convention; Federal Arbitration Act; Effect of Choice of Laws Provision
Gulfstream Aerospace Corp. v. Oceltip Aviation 1 PTY Ltd., 2022 U.S. App. LEXIS 10382 (11th Cir. April 18, 2022)(per curiam)(Judges Wilson, Rosenbaum, and Ed Carnes), addresses the effect of a state-oriented choice of laws provision on the application of the FAA. Gulfstream sued to confirm an $8 million arbitration award related to the alleged breach of an airplane sales contract. The agreement provided that the rights of the parties “shall be governed by the laws of the state of Georgia, and the U.N. Convention on Contracts for the International Sale of Goods [CISG] . . . shall not apply, without reference to rules regarding conflicts of laws.” Oceltip argued that the reference to Georgia law incorporated the Georgia Arbitration Code and stripped the federal court of the jurisdiction granted it by Section 2 of the New York Convention. The Eleventh Circuit affirms the District Court’s rejection of that contention and its confirmation of the award. “[S]tate law cannot strip a federal court of federal jurisdiction.” Oceltip further argued that Georgia law, rather than the restrictive standards for vacatur under the Convention and FAA, should apply to review of the award. The court also rejects that position. Looking to the language of the contract, the panel opines that the choice of laws provision was meant simply to exclude application of CISG, not to incorporate the full Georgia Arbitration Code, which the contract did not even mention.
Arbitration exception to the Foreign Sovereign Immunity Act
In the 1990s, Argentina liquidated and took over the obligations of Caja, a state-owned reinsurance company. In 2017, TIG, which had paid premiums to Caja, obtained a default arbitration award against both Caja and Argentina. In 2018, a District Court confirmed the award and entered a default judgment against Argentina in the amount of approximately $3.5M. This action arises out of TIG’s efforts to collect on those awards by attaching a building in Washington, D.C., which Argentina allegedly owned.
Argentina asserted that, under the FSIA, it was immune from suit. TIG Insurance Co. v. Republic of Argentina, 2022 U.S. Dist. LEXIS 71213 (D. D.C. April 18, 2022)(Friedrich, J.) upholds that defense. The relevant portion of the decision for arbitration practitioners relates to the application of the FSIA’s “arbitration exception.” That section permits suit against a foreign sovereign in any case “in which the action is brought either to enforce an agreement made by a foreign state with or for the benefit of a private party to submit to arbitration all or any differences . . . or to confirm an award made pursuant to such an agreement to arbitrate.” (Emphasis added). Here, the arbitration provisions are contained in reinsurance agreements between TIG and Caja. The court holds that, even though Argentina may be the successor to Caja and may be liable for its debts as a matter of law, the nation itself did not “make” the agreement; Caja, not the sovereign, was the signatory to the reinsurance obligations. “On its face, the past participial phrase ‘made by’ refers to the parties who reduced the arbitration agreement to writing, executed, and delivered it at the time of formation – i.e., the point at which the agreement was made.” Argentina’s liability on the underlying obligation is not relevant to the existence of immunity. “Here, if Congress had intended the arbitration exception to turn on liability, it could have tied that exception to agreements that ‘bound’ or ‘governed’ foreign states, as opposed to agreements that those state ‘made.’. . . [E]ven if Argentina is Caja’s successor-in-interest, assumed Caja’s contractual liabilities, or is equitably estopped from denying those liabilities, the arbitration agreements were nonetheless not ‘made by’ Argentina so as to waive sovereign immunity.” In a footnote, the court specifically recognizes that this may render Argentina “a potentially liable party incapable of being sued.” Judge Friedrich also quickly rejects TIG’s reliance on the waiver and commercial activity exceptions to the FSIA.
In this era when nations are becoming more closely tied to international debt obligations, this case is important reading not only for arbitration practitioners, but also for counsel to international lenders who need to consider the scope of waivers of FSIA rights and the appropriate signatories to those obligations.
On-boarding and Arbitration Agreements
As electronic on-boarding practices become more common, it is increasingly frequent for employees to seek to avoid arbitration by claiming that someone else entered their “signatures” into the portal. Generally, those denials simply take the form of a blanket statement that “I did not sign” or “I do not remember signing” – claims which courts consistently reject in light of electronic remnants of participation. McCoy v. Pan American Group, 2022 U.S. Dist. LEXIS 71051 (W.D. Pa. April 18, 2022)(Wiegand, J.) demonstrates the type of evidence which creates a question of fact and requires a court to hold an evidentiary hearing on whether the employee actually participated in the electronics of the sign-in process – or if a manager or fellow employee made entries either on the plaintiff’s behalf or without his or her knowledge. Here, Ms. McCoy presented evidence that, at the time the employer said she logged into the system, she was, not only away from her place of employment, but was riding a city bus; she showed that there were potentially gaps in Pan American’s records; and she demonstrated that data which Defendant stated McCoy entered at the time of her employment might have been simply someone else’s reentry of earlier data. “Ms. McCoy’s assertion that she did not agree to the [arbitration provision] is not ‘[a] naked assertion. . . that [Ms. McCoy] did not intend to be bound by the terms [of the arbitration provision]’, but rather ‘[a]n unequivocal denial that the agreement had been made’” together with evidence “’sufficient to require a jury determination on whether there had in fact been a ‘meeting of the minds.’” Taking such facts as true, as it must under Fed. R. Civ. P. 56, the court holds that there is a question of fact as to whether the parties agreed to arbitration and sets the issue for trial.
Delegation of Arbitrability; Incorporation of AAA Rules; Jurisdiction to Compel Arbitration under the FAA
Kentucky Peerless Distilling, LLC v. Fetzer Vineyards Corp., 2022 U.S. Dist. LEXIS 71539 (W.D. Ken. April 19, 2022)(Boom, J.), is a reminder of two common principles. First, the incorporation of the AAA’s (or similar) arbitration rules which authorize the arbitrator to rule on his or her own jurisdiction, see e.g., AAA Commercial Rules and Mediation Procedures, Rule 7 (2013), demonstrates the parties’ intention to refer gateway questions, such as whether the parties agreed to arbitrate a particular dispute, to the arbitrator. Second, while the court finds that the parties agreed to arbitrate, it holds that it lacks authority to compel that procedure. Section 4 of the FAA, which grants District Courts the authority to compel arbitration, requires that “[t]he hearing and proceedings, under such agreement, shall be within the district in which the petition for an order directing such arbitration is filed.” Here, the arbitration agreement provided that the arbitration must take place in Dallas, Texas. Therefore, Judge Boom holds, “only a district court in that forum has jurisdiction to compel arbitration.” She dismisses this Kentucky-based action without prejudice.
Sealing of Arbitration Submissions; Reinsurance arbitrations; ARIAS Confidentiality Agreement
There is a presumption that documents submitted in connection with a motion to compel arbitration are available to public view. However, in Washington Schools Risk Management Pool v. American Re-Insurance Co., 2022 U.S. Dist. LEXIS 72548 (W.D. Wash. April 20, 2022), Magistrate Judge Vaughan holds that the provisions of the ARIAS Form Confidentiality Agreement and Protective Order trumps that public interest. Those agreements require parties to a reinsurance arbitration who seek judicial action in connection therewith to move to seal the court file insofar as it includes documents produced in connection with that arbitration. The court grants the defendants’ motion to seal.
The case is interesting for what it does not say, rather than the holding itself. The parties agreed to seal certain parts of the record, and the court approves that agreement. However, while Magistrate Judge Vaughn adopts a “compelling interest” standard, which she maintains “results in greater access to the public,” the court never lays out its reasoning for overcoming “the strong presumption in favor of public access.” Where parties agree to seal the record related to a judicial action, should the court ever appoint counsel to represent the public’s interest in “access?” If so, what type of cases justify imposing the expense of such counsel on the parties?
Pre- and Post-judgment Interest
In Lalo v. Hawk Apparel, Inc. 2022 U.S. Dist. LEXIS 72218 (N.D. Tex. April 20, 2022)(Lindsay, J.), plaintiff seeks to confirm an arbitration award of approximately $1.3M. In addition to compensatory damages, the arbitrator awarded both pre-judgment and post-judgment interest. The District Court vacates the award only insofar as it relates to that award of interest. First, the court reduces the arbitrator’s award of prejudgment interest from 6% per annum to 5%, the Texas statutory rate. In making that determination, the court relies upon Fifth Circuit authority holding that “prejudgment interest is calculated under state law in diversity cases such as this one, ” citing Boston Old Colony Insurance Co. v. Tiner Associates, Inc., 288 F. 3d 222 (5th Cir. 2002). Practitioners dealing with interest calculations should research whether applicable law allows the arbitrator greater discretion in selecting an interest rate. The more generally relevant portion of the opinion focuses on post-judgment interest. Judge Lindsay holds that the arbitrator “does not have authority to specify the rate of postjudgment interest, unless the arbitrator has been given authority by the parties to award a nonstatutory rate of postjudgment interest.” Absent such agreement, the post-judgment interest rate is set by statute, see 26 U.S.C. § 1961. Per the court, that rate is currently 6%.
Review of Awards of Pre-hearing Security
In American Zurich Insurance Co. v. Caton Park Nursing Home, 2022 U.S. Dist. LEXIS 70589 (N.D. Ill. April 18, 2022)(Rowland, J.), Petitioner sought to confirm a $228,000 award of pre-hearing security. The court holds that, even though the arbitration is still pending, this award is “final” and “subject to both confirmation and [vacatur] under the FAA.” (Brackets in opinion). In so holding, Judge Rowland cites to authority in the Seventh and Ninth Circuits. Finding no reason under the FAA to vacate the award, the court confirms it.
Bankruptcy and Arbitration
When, if ever, must a Bankruptcy Court enforce an arbitration agreement? Fort, Trustee v. Kibbey (In re: Labsource, Debtor), 2022 Bankr. LEXIS 1083 (D.S.C. April 19, 2022)(Burris, C.B.J.), addresses the question by drawing a distinction between core and non-core disputes. “Core” v. “non-core” issues are sometimes nuanced questions of bankruptcy law beyond the scope of this blog. However, since the bankruptcy trustee steps into the shoes of the debtor, where the proceeding is non-core the “bankruptcy court does not have the discretion to decline to enforce an arbitration agreement. . . “ However, “arbitration of constitutionally core claims may inherently conflict with the purposes of the Bankruptcy Code, and the bankruptcy court is generally within its discretion to refuse arbitration of such claims.” (Internal quotations omitted). Here, the Trustee asserts state law claims against defendant for malpractice, fraud, and breach of contract. Those disputes, Judge Burris holds, are subject to an arbitration agreement between the debtor and the defendant professionals. While those claims are tangentially related to proofs of claim, they are essentially non-core matters. Therefore, the court compels arbitration and stays the litigation.
The current edition of Dispute Resolution Magazine, Vol. 28. No. 2 (April 2022), the ABA Dispute Resolution Section’s publication, focuses on “Resolving International Disputes.” It has articles by Nancy Thevenin, Luis Martinez and Rafael Carlos del Rosal Carmona on Emergency Arbitration Procedures under the ICDR and ICC rules. There is also an interesting dialog, moderated by Ava Borrasso, between Lucy Greenwood and Michael Mcilwrath about the increase in paperless (or reduced paper) arbitrations, greater transparency in panel selection, and upcoming arbitrations regarding climate change. Brandon Malone writes on the important issue of “Keeping Disputes Cybersecure in the Virtual Age.” Whether you practice international or domestic arbitration, the current edition of the magazine is a valuable read. If you do not already belong to the Section, join. These materials and the Section Spring Conference which starts Tuesday are typical of the section’s work.
Have a good weekend.
David A. Reif, FCIArb