The U.S. Supreme Court will be hearing a case next Tuesday which involves the New York Convention. In addition, two other courts just decided, or Lexis just published cases, dealing with international arbitrations. So, the enforcement of non-domestic arbitration awards is the leading topic today. However, there is also an important case dealing with appeals of non-FAA motions to compel. So, this issue has a mix of topics.
RICO and the New York Convention
One of the more interesting cases this week is a RICO case which either arises out of or relates to (the distinction may matter) an international arbitration. The case, Yegiazaryan v. Smagin, Dkt. No. 22-381, will be argued next Tuesday in the U.S. Supreme Court.
In 2014, a three-arbitrator panel awarded Smagin approximately $84 million against Yegiazaryan and others in a dispute arising out of a Russian real estate project. In 2016, the U.S. District Court in the Central District of California recognized the award. It also entered an order prohibiting Yegiazaryan from concealing any amounts which he might receive in an arbitration that he had pending against Suleyman Kerimov. Smagin claims that Yegiazaryan violated that order and, through a series of entities, hid approximately $188 million from a settlement with Kerimov. Smagin subsequently brought this action under the RICO statute against, not only Yegiazaryan, but also other entities who allegedly assisted in hiding the assets.
The parties’ dispute before SCOTUS largely centers around whether the RICO statute requires that the Plaintiffs’ claim arise from a “domestic injury.” Yegiazaryan argues that the economic loss, if any, to Plaintiff is located where he resides, i.e., Russia. Conversely, Smagin focuses on the California District Court judgment recognizing the award. “This case involves domestic conduct by Petitioners (and their co-conspirators) to injure and ultimately strip Smagin of his California judgment. . . .”
While the case largely involves interpretation of the RICO statute, it has clear implications for the recovery of funds to satisfy arbitration awards which are subject to the New York Convention. For arbitration practitioners, the best read in the case is the amicus brief of Professor George Bermann, one of the stars in the international arbitration firmament, in support of Smagin. Professor Bermann argues that “The Convention makes clear that an award creditor has a right to enforce its international arbitral award in the United States using all of the procedural tools available to it under local law, and that Convention States are obligated to make those tools available. There is no reason why, in the United States, those means should not include, if necessary, a Civil RICO claim, provided the statute’s substantive requirements are otherwise met.” The interesting issue, though, is whether a separate action, asserting damages under the Racketeering statute, is really “enforcement” of the arbitral award, similar to obtaining a writ of execution on assets or seeking to set aside a fraudulent conveyance. In a RICO action, the plaintiff is doing more than seeking funds to satisfy the judgment. Rather, he is seeking damages for racketeering conduct. While a measure of those damages would include the amount of the unsatisfied award, RICO also allows treble damages and, as here, may involve defendants other than just the judgment debtor. Three European scholars with affiliations to institutions in London – Eva Lein, Manuel Penades Fons, and Ugljiesa Grusic – argue in their amicus brief in support of the Petitioner, that such multiple damages are not generally recognized in the EU and UK. “[I]f called upon to enforce a RICO multiple-damages judgment, courts in the UK and EU countries would generally decline to do so as contrary to public policy. . . .”
The ultimate decision in the case will probably hinge on the language of the RICO statute. Does it require a “domestic loss?” If so, is action to thwart collection of a U.S. judgment sufficiently “domestic?” However, for international arbitration practitioners, the consequences of the decision will be important, because a mandate in favor of Smagin opens a range of possibilities for those seeking to satisfy a New York Convention award.
The briefs, including those of the amici, are available on the always great SCOTUS blog. The recorded argument should be available on the Court’s website later next week.
Also, remember that SCOTUS has another arbitration case already argued and awaiting decision. In Coinbase, Inc. v. Bielski, No. 22-105, the Court is considering whether a District Court loses jurisdiction to proceed with litigation during the non-frivolous appeal of the denial of a motion to compel arbitration. The case was argued on March 21st.
Two other recent cases dealt with aspects of international arbitration and the enforcement of awards.
Cube Infrastructure Fund SICAV v. Kingdom of Spain, 2023 U.S. Dist. LEXIS 66104 (D.D.C. March 31, 2023)(Upadhyaya, M.J.), addresses the respective role of courts and arbitrators in determining whether there is an effective agreement to arbitrate. The issue centers around the arbitration exemption to the Foreign Sovereign Immunities Act (“FSIA”). That article provides that “a foreign state shall not be immune from the jurisdiction of the courts of the United States or that of the states in any case. . . in which the action is brought. . . to confirm an award made. . . pursuant to an agreement to arbitrate if. . .the agreement or award is or may be governed by a treaty or other international agreement in force . . . calling for the recognition and enforcement of arbitral awards.” Plaintiff had obtained an award under the Energy Charter Treaty after an ICSID arbitration. Plaintiffs, then, brought this action to confirm the award under the Convention on the Settlement of Investment Disputes Act, 22 U.S.C. § 1650. In defense, Spain claimed, both before ICSID and here, that the arbitral tribunal lacked jurisdiction, relying upon certain opinions by the Court of Justice of the European Union, primarily, Slovak Republic v. Achmea, B.V., Case No. C-284/16 (March 6, 2018). The ICSID panel rejected Spain’s postion. Defendant, here, repeats the argument, attempting to parlay it into a jurisdictional argument under the FSIA. In essence, the Kingdom argues that the agreement to arbitrate was “void ab initio under EU law and, as such, the arbitration exception to the FSIA does not apply.” The court rejects that position, holding that Spain’s argument is essentially one of arbitrability, not District Court subject matter jurisdiction. As such, it is one for the Tribunal and the ICSID Annulment Committee. The Achmea issue rears its head periodically in European-oriented sovereign state arbitrations, and this case is rife with citations to the jurisdictional question, so it is good reading for international arbitration practitioners. The case also reaffirms that forum non conveniens considerations do not apply to actions to confirm foreign arbitral awards “because only U.S. court can attach foreign commercial assets found within the U.S.” Magistrate Judge Upadhyaya recommends that the court enter summary judgment for the Plaintiff.
In another international arbitration case, Iraq Telecom Limited v. IBL Bank S.A.L., 2023 U.S. App. LEXIS 9060 (2nd Cir. April 17, 2023)(summary order by Judges Level, Chin, and Sullivan), the Court affirms the District Court’s refusal to stay enforcement of a $3M award against IBL. Iraq Telecom sought the stay under Article 6 of the New York Convention. That provision gives the court in a secondary jurisdiction discretion to “adjourn the decision” on enforcement if an application to set aside the award has been made in the primary jurisdiction. In making such a decision, courts in the Second Circuit are guided by the factors in Europcar Italia, S.p.A. v. Maiellano Tours, Inc., 156 F. 3d 310 (2nd Cir. 1998). Both the lower and appellate courts rely most heavily on two of those factors – the “expeditious resolution of disputes” and “the status of the foreign proceedings and the estimated time for those proceedings to be resolved.” The District Court found that the foreign annulment proceedings in Lebanon were “in the earliest stage,” and that further delay to await the result of the annulment proceeding “would only protract this long running and contentious dispute.” The court also affirms the District Court’s holdings that “the weakness of [IBL’s] arguments in the annulment proceeding reinforce[d] the impression that IBL is simply seeking to delay the inevitable confirmation” and that the balance of hardships weigh against IBL. It does find one Europcar factor “slightly” favors a stay – “whether the award will receive greater scrutiny in the foreign proceedings under a less deferential standard of review.” The Court of Appeals affirms the stay denial. One of the important takeaways from the case is that the appellate court uses an abuse of discretion standard in its review of the lower court’s judgment. Therefore, it is essential that the party seeking a stay present the strongest possible case to the District Court. If it loses there, all hope is lost; but, if it wins, the chance of the stay being reversed is minimal.
Appeal of the Denial of a Motion to Compel Which Is Not under the FAA
Jackson v. Amazon.com, Inc., 2023 U.S. App. LEXIS 9270 (9th Cir. April 19, 2023), addresses several important issues, including both the adequacy of a party’s consent to the amendment of an existing agreement which changes the arbitration provision and the scope of the parties’ arbitration provision. This latter issue results in a dissent by Judge Graber from the decision of Judges Schroeder and Friedland.
Of broader interest, though, is the Court’s determination that it has subject matter jurisdiction in the matter. The Plaintiffs are Amazon Flex last mile drivers. They allege that Amazon invaded their privacy by monitoring their closed Facebook groups, which they purport to have created during off-work hours. Those groups discussed unionizing efforts, planned protests, and other workplace concerns. After the District Court denied its motion to compel arbitration, Amazon took this appeal. Jackson moves to dismiss for lack of appellate jurisdiction.
If this case arose under the Federal Arbitration Act, such a jurisdictional challenge would fail. Section 16 of the FAA makes rulings refusing to compel arbitration immediately appealable. However, the Ninth Circuit has held that Flex drivers are exempt from the FAA, see Rittmann v. Amazon.com, Inc., 971 F.3d 904 (9th Cir. 2020). Therefore, Amazon pressed for arbitration under state law. It based appellate jurisdiction on 28 U.S.C. 1292(a)(1), which provides authority to appeal the denial of injunctive relief as of right. The court holds that, under Ass’n of Machinists and Aerospace Works, AFLCIO v. Aloha Airlines, 776 F. 2d 812 (9th Cir. 1985), “denials of motions to compel arbitration are immediately appealable because they deprive appellants ‘of the opportunity to arbitrate the dispute, a decision with serious consequences that can only be challenged by immediate appeal,’” quoting Aloha at 814-15. The court cites, but distinguishes, contrary holdings in the First, Third, Fifth, Seventh, Eighth, Eleventh, and D.C. Circuits. More importantly, it distinguishes Gulfstream Aerospace Corp. v. Mayacamas Corp., 485 U..S. 271 (1988), which held that “orders granting or denying stays of ‘legal’ proceedings on ‘equitable’ grounds are not automatically appealable under § 1292(a)(1),” (Citation omitted). If SCOTUS continues to construe the “transportation worker in interstate commerce” exemption from the FAA somewhat expansively, see e.g. Southwest Airlines Co. v. Saxon, 142 S. Ct. 1783 (2022)(ramp supervisor who periodically loaded and unloaded baggage exempt from FAA), and the delivery business continues to grow, the right to appeal denials of motions to compel raised in federal court under state law will become more important. Perhaps, this Circuit split will be one more arbitration issue for SCOTUS’s consideration.
Have a good weekend. I have an award to write in connection with my “day job” as an arbitrator. So, there may be a delay in next week’s issue. Enjoy your weekend.
David Reif, FCIArb