Case Summaries: Annulled Foreign Arbitration Award Partially Enforced
An arbitration award rendered in Nigeria was partially annulled by a Nigerian Court. The district court, applying applicable Second Circuit precedent, declined to enforce the award, including that portion of the award which was enforced by the Nigerian court. The Second Circuit reversed that part of the district court’s ruling which failed to enforce what had been upheld on the ground that the Nigerian court’s ruling was entitled to full comity. The Second Circuit explained that “a district court should enforce an award that was set aside in the primary jurisdiction—and thereby deny comity to the relevant foreign judgment—only if the judgment setting aside the award can be properly characterized as ‘repugnant to fundamental notions of what is decent and just’ in the United States, in which case reliance on the judgment would be contrary to U.S. public policy.” The court reasoned that the district court was required to enforce those portions of the award which the Nigerian Court upheld. In doing so, the Second Circuit noted that
questions may reasonably be raised regarding the correctness of the Nigerian appellate court’s legal conclusions, as well as a practical effect of its judgments, but our role in secondary jurisdiction is not to second-guess the Nigerian court’s substantive determinations made under Nigerian law. We assess that court’s rulings only so far as required to ascertain whether they are plainly incompatible with U.S. notions of justice.
The Second Circuit observed that the parties had an adequate opportunity to be heard by the Nigerian court and could point to no glaring procedural irregularities. The court rejected the broad argument that Nigerian courts lack sufficient independence from government pressure to warrant deference, stating that “broad, non-specific evidence does not form an appropriate basis for a judicial conclusion in U.S. courts that a specific foreign judgment is necessarily repugnant to notions of justice in this country so as to require the abandonment of comity.” For these reasons, the Second Circuit remanded the case to the district court to formulate a partial enforcement order based on its ruling. Esso Exploration and Production Nigeria Ltd. v. Nigerian National Petroleum Corp., 40 F.4th 56 (2d Cir. 2022).
Motion To Confirm Award Under Seal Rejected
Bristol-Myers Squibb (BMS) prevailed in an arbitration brought against it by Novartis. BMS moved to confirm the award under seal, but the motion was denied and its motion to confirm, without the award attached, was filed publicly. Novartis then moved to seal the award and added an alternative request to file a redacted version of the award. Novartis argued that the redactions, 11 of 30 pages, would prevent the disclosure of trade secrets and proprietary information. The court noted that “the proposed ‘redacted’ version of the award leaves the reader pretty much in the dark about the arbitration and the basis of the award, accomplishing essentially the same result as full sealing does.” The court rejected Novartis’s application. The court emphasized that under both the common law and the First Amendment there is a strong presumption of access to court filings to ensure the public confidence in the integrity of court proceedings. That presumption can only be overcome if sealing is deemed essential to preserve higher values and is narrowly framed. The court noted that arbitration is a “purely private proceeding to which no public right of access attaches.” The court added that arbitration “has become the dispute resolution mechanism of choice for those who wish to keep the public from knowing about their business. As long as the parties confine themselves to their chosen private venue, they are free to conduct themselves under a veil of privacy.” The court concluded, however, that “privacy considerations go by the board if a party comes to court in order to obtain an enforceable judgment on his award.” The court characterized Novartis’s claim that sealing was warranted because the parties have treated the proceeding as confidential as “just plain wrong.” The court described the parties’ confidentiality agreement as being “worth the paper on which it is written only as long as the matter remains a private matter—which is to say, only as long as no party seeks to involve the court, and through the court the Government and the people, in its resolution.” The court also rejected Novartis’s argument that the FAA clearly established a federal policy favoring confidentiality in arbitration. The court “emphatically disagreed” and noted that if parties abided by the arbitration award their concern for confidentiality would be respected. The court opined, however, that “in this Court’s experience, there are a lot of sore losers in arbitration—and because they have chosen arbitration, they have no right to appeal an adverse decision to a higher tribunal. So they simply do not comply with the award.” The court also reminded the parties that it “is not a party to any confidentiality agreement they have made with themselves or the arbitrators” but rather is bound to comply with the law “even if courts have on occasion winked at the law and mistakenly allowed confirmation proceedings to be conducted under seal.” For these reasons, the court rejected Novartis’s motion to seal the award. Bristol-Myers Squibb Co. v. Novartis Pharma AG, 2022 WL 2133826 (S.D.N.Y.), reconsideration denied, 2022 WL 2274354 (S.D.N.Y. June 23, 2022).
Court Declines To Review Merits of Arbitrator Ruling on Subpoena
Under § 7 of the FAA, a court “may” issue an arbitration subpoena. CBS in this case refused to comply on privilege grounds with an arbitration subpoena which required the disclosure of an internal investigation of a sexual harassment complaint. Plaintiff labor union moved to compel enforcement of the subpoena under § 7. The court noted that the application raised the “novel legal issue of whether the Court is authorized to consider privilege objections to a subpoena” issued by an arbitrator. The court concluded that it has the discretion to consider privilege objections but declined to do so in this case. The court explained that “the rationale for deferring to an arbitrator’s decisions on privilege issues is particularly strong where the objecting respondent is a party to the contract that gave rise to the underlying arbitration.” The court found that the arbitrator had sound reasons for compelling production as it was persuaded that CBS placed the investigation at issue in the proceeding. Moreover, “CBS elected to have an arbitrator, rather than a court, resolve any discovery disputes that might ensue, including making decisions about CBS’s assertions of legal privileges.” The court did, however, require that the name of the employee alleging harassment along with non-managerial employee witnesses be made available to the unions on an “attorney-eyes only” basis. Turner v. CBS Broadcasting Inc., 599 F. Supp. 3d 187 (S.D.N.Y. 2022).
ERISA Confers Federal Jurisdiction in Face of Badgerow Challenge
The court here confirmed an award which denied breach of fiduciary duty claims under ERISA. Two weeks later, the Supreme Court issued its decision in Badgerow v. Walters which rejected the “look through” approach to federal subject matter jurisdiction. The question for the court here was whether, following Badgerow, it had subject matter jurisdiction to issue its prior decision to confirm the award. The court concluded that in fact it did have such jurisdiction. The court emphasized that an arbitration award is no more than a contractual method for settling disputes. The issue before a court reviewing applications under § § 9 and 10 of the FAA for subject matter jurisdiction purposes is limited to the specific contract terms for settling disputes. The Court in Badgerow determined that since contractual rights are generally governed by state law and resolved in state courts, application of the contractual right to arbitrate generally belongs in state court. “ Thus, whether a non-diverse Section 9 or 10 application states a federal question on its face is a question that looks to the governing law of the contract, not to the law of the underlying claims.” For this reason, the Supreme Court in Badgerow concluded that since the employment agreement in that case was governed by state law, state law applied notwithstanding the substantial federal claims at issue. In this case, however, the applicable agreement was governed by ERISA and “questions of dispute resolution relating to an ERISA Plan including those concerning arbitration are governed exclusively by federal statutory and common law federal courts have developed for ERISA.” As the narrow contractual rights at issue here related to the settlement of disputes in this case under an ERISA plan governed by federal law, the court concluded it had subject matter jurisdiction to rule under § § 9 and 10 of the FAA. Trustees of the New York State Nurses Association Pension Plan v. White Oak Global Advisors, 2022 WL 2209349 (S.D.N.Y.).
Court’s Failure To View Actual Webpage Requires Remand
An account holder brought a putative class action against a credit union. The credit union moved to compel an individual arbitration on the basis that the plaintiff was bound by a mandatory arbitration clause and class action waiver. Plaintiff opposed the motion, claiming there was no arbitration clause or class action waiver in the agreement when she opened her account. The district court denied the motion to compel, and the credit union appealed. The preeminent issue on appeal was whether the parties agreed to arbitrate. Noting that the arbitration agreement was part of an online transaction, the Second Circuit explained: “In the context of web-based contracts, we look to the design and content of the relevant interface to determine if the contract terms were presented to the offeree in [a] way that would put her on inquiry notice of such terms.” The court then found that the district court erred in undertaking the “inquiry notice” analysis because it reviewed a printed version of the agreement rather than screenshots of the web-based agreement, finding that the printed version “does not depict the content and design of the webpage as seen by users signing up for online banking.” The court concluded that “the record was not sufficiently developed to indicate whether [plaintiff] knowingly agreed to the arbitration clause” and the matter was remanded to the district court to “consider the design and content of the [Banking Agreement] as it was presented to users in determining whether [plaintiff] assented to its terms.” Zachman v. Hudson Valley Federal Credit Union, 49 F.4th 95 (2d Cir. 2022).
Discovery Into Presumed Bias of Arbitration Process Rejected
Coach Brian Flores alleged that the NFL and a number of teams engaged in systemic racial discrimination. The NFL moved to compel arbitration under the league’s policy, and Flores opposed the motion. In doing so, Flores sought “documents concerning the parties’ agreement to arbitrate and applicable arbitration policies, the arbitrator’s relationship with the NFL and its history of arbitration rulings, as well as the NFL’s relationship with NFL Teams.” The court rejected Flores’s request regarding the applicable arbitration agreement as an “impermissible fishing expedition” since he offered no basis to challenge the validity of the agreement itself. The court also denied discovery related to the impartiality of the process without evidence “of clear substantive or procedural bias baked into the arbitration agreement.” The court added that the FAA provided a remedy for arbitrator bias, namely, motions for vacatur. The court also declined to order discovery regarding the history of the arbitration decisions by the NFL commissioner, who would be the arbitrator here, as such evidence did not bear on the validity of the arbitration agreement itself. The court observed that Flores did not “cite a single case in which the court ordered discovery focused on the dealings and rulings of an individual arbitrator in the context of a motion to compel arbitration.” Finally, the court noted that the requested discovery would not assist in determining whether the NFL, a non-signatory, may seek to enforce the arbitration agreement signed by the NFL Teams. Flores v. National Football League, 2022 WL 3098388 (S.D.N.Y.).
Failure To Hold Hearing Not Ground for Vacatur
The guaranty agreement between the parties included an expedited arbitration procedure that required each party to submit its position and materials to the arbitrator within seven business days following his or her appointment. The agreement also stated that the arbitration would be administered under the JAMS Streamlined Arbitration Rules and Procedures. The arbitrator was required to issue a final award within 30 days of the submissions. The arbitrator here complied with the timeliness mandates of the agreement and awarded $185,000,000 to claimant under the guaranty and respondent moved to vacate the award on the ground that the arbitrator’s failure to grant its request for discovery and to hold an evidentiary hearing rendered the process fundamentally unfair. The court rejected respondent’s argument and agreed with the arbitrator that the extremely expedited arbitration process that the parties agreed to did not contemplate time for discovery or hearing. “While the arbitrator in this case did not hold an evidentiary hearing, she considered extensive submissions by the parties in connection with both the scheduling decision and the final merits decision.” The court also rejected respondent’s contention that discovery was required because the agreement also incorporated the JAMS Rules which contemplate discovery being exchanged. “The arbitrator reasonably concluded that these contract terms conflict with, and displaced, the JAMS Rules providing for discovery and a hearing. The arbitrator noted that the JAMS Rules explicitly allow parties to waive an oral hearing and agree on procedures not contained in the JAMS Rules.” The court concluded by noting that in further support of its conclusion “the parties are sophisticated commercial entities who operated with equal bargaining power” and that the arbitrator provided “more than a colorable justification for her interpretation of the arbitration agreement.” 245 Park Member LLC v. HNA Group (International), 2022 WL 2916577 (S.D.N.Y.).
Bakery Workers Not Covered by FAA Transportation Exemption
Plaintiffs were independent contractors who delivered baked goods by truck to stores and restaurants within Connecticut. They sued their employer for wage and hour violations, and the employer moved to compel arbitration. The district court granted the motion, and a majority of a Second Circuit panel affirmed. The majority explained that to be entitled to the exemption the plaintiffs must work in the “transportation industry.” The majority concluded that “those who work in the bakery industry are not transportation workers, even those who drive a truck from which they sell and deliver the breads and cakes.” The majority reasoned “that an individual works in a transportation industry if the industry in which the individual works pegs its charges chiefly to the movement of goods or passengers, and the industry’s predominant source of commercial revenue is generated by that movement.” The court acknowledged, as pointed out by the dissent, that the plaintiffs spent significant time moving baked goods from place to place. “The decisive fact is that the stores and restaurants are not buying the movement of the baked goods, so long as they arrive. Customers pay for the baked goods themselves; the movement of those goods is at most a component of total price.” The majority therefore concluded that the plaintiffs did not work in the transportation industry and the motion to compel was properly granted. Bissonnette v. LePage Bakeries Park Street, LLC, 49 F.4th 655 (2d Cir. 2022).
Order Resolving Independent Claim Final
A tribunal remained constituted to address several phases of a coverage dispute under an excess liability insurance policy. The tribunal issued two orders—one related to reimbursement of a payment prematurely made and the second setting procedures for future submission of claims. A motion to confirm was filed. The question for the court was whether the tribunal’s order with respect to these two issues was “final” and therefore subject to confirmation. The court concluded that the first issue was in fact final as it resolved a separate and independent claim, namely, whether the premature payment was to be refunded. The court noted that “the repayment has no bearing on future claims and is, therefore, a severable issue.” The court reached a different result with respect to the second issue. There, the court reasoned that the panel’s interpretation of the insurance policy merely decided issues that would bear on future determinations to be made by the tribunal. The parties themselves acknowledged that the tribunal’s rulings would establish a framework for future payments and the tribunal informed the parties that they could challenge its rulings and that those challenges would be addressed at the next phase of the proceedings. For these reasons, the court concluded that the tribunal’s rulings on the second issue were not final but rather were interlocutory and not subject to confirmation. HDI Global SE v. Phillips 66 Co., 2022 WL 3700153 (S.D.N.Y.).
Question of Fact Concerning Existence of ‘Superseding’ Arbitration Agreement Defeats Motion To Enjoin
Willow Run petitioned to enjoin SMS from arbitrating its breach of contract claims, arguing that an agreement dated April 7, 2003, replaced and superseded the 1998 Distribution Agreement that SMS was relying on. The alleged 2003 Agreement could not be located by either party and Willow Run argued that without the ability to resort to its terms, the parties could not be bound to arbitrate. Before denying Willow Run’s petition, the federal district court observed that when “deciding a motion to enjoin arbitration, courts apply a standard similar to that used to evaluate a motion for summary judgment,” noting that this is the appropriate standard to determine arbitrability “regardless of whether the relief sought is an order to compel arbitration or to prevent arbitration.” Thus, when there is “no genuine issue as to any material fact and the moving party is entitled to judgment as a matter of law” the arbitration will be enjoined. In opposition to the motion, SMS asserted that the alleged 2003 Agreement was born from a series of clerical errors made by the parties over the course of their business relationship. The parties amended the 1998 Distribution Agreement seven times, each time attaching a new “Exhibit A” extending the term of the agreement. Based on the parties’ course of dealing, the court found that at minimum there were genuine issues of material fact present at to which agreement “was the operative agreement between SMS and Willow Run for the entirety of the parties’ business relationship.” Accordingly, Willow Run’s motion to enjoin the arbitration was denied. Willow Run Foods, Inc. v. Supply Management Services, Inc., 2022 WL 1813984 (N.D.N.Y.).
Alfred G. Feliu is an arbitrator and mediator on various AAA and CPR panels. Mr. Feliu is a past chair of the NYSBA Labor and Employment Law Section and a fellow of the College of Commercial Arbitrators and the College of Labor and Employment Lawyers. He is the editor of ADR in Employment Law published by Bloomberg/BNA.
