Alex Silverman

California Federal Court Rejects Unconscionability Claims, Enforces Delegation Clauses in Arbitration Agreements

April 29, 2021 by Alex Silverman

Two former Aon employees sued Aon, claiming restrictive covenants in agreements they entered into with the company were void, illegal, and unenforceable. Aon moved to compel arbitration per arbitration provisions in the relevant contracts. The plaintiffs argued that the arbitration provisions were both procedurally and substantively unconscionable, and thus unenforceable. In response, Aon pointed to “delegation clauses” in the provisions, pursuant to which disputes about gateway arbitrability issues are to be decided by an arbitrator. The plaintiffs claimed the delegation clauses were also unconscionable, but the U.S. District Court for the Northern District of California disagreed.

To successfully challenge a delegation clause, the court explained that a party cannot challenge the broader arbitration agreement in which the clause is contained; rather, it must be shown that the specific delegation language is itself invalid based on a general principle of contract law. Here, the court ruled initially that the delegation clauses at issue “clearly and unmistakably” delegated gateway questions to an arbitrator, rejecting the plaintiffs’ effort to argue otherwise. The plaintiffs also claimed the clauses were unconscionable, but the court disagreed. While finding the clauses “[were] — at most — minimally procedurally unconscionable” insofar as they were non-negotiable conditions of employment, the court found the clauses were in no way substantively unconscionable. Thus, applying the “sliding scale” approach, the court held that the clauses were valid, enforceable, and required granting Aon’s motion to compel arbitration.

Norris v. Aon PLC, No. 3:21-cv-00932 (N.D. Cal. Apr. 2, 2021)

New York Federal Court Declines to Modify Arbitration Award to Include Attorneys’ Fees and Costs

April 28, 2021 by Alex Silverman

The plaintiff filed suit in the U.S. District Court for the Eastern District of New York seeking to modify an arbitration award to include reasonable attorneys’ fees, costs, and expenses. The award had been issued to the plaintiff and another similarly situated claimant in connection with their labor law claims against the defendants. The award provided that administrative fees and the arbitrator’s compensation “shall be borne as incurred” but did not address attorneys’ fees or other costs. The plaintiff therefore requested that the court modify the award pursuant to section 11(a) of the FAA on the basis that the arbitrator made “an evident material mistake” in failing to include attorneys’ fees and costs in the award.

At the outset, the court explained that section 11 provides the exclusive grounds for modifying an arbitration award and that the grounds are “grudgingly narrow.” Although relevant labor laws mandated that prevailing claimants be awarded reasonable attorneys’ fees and costs, it remains the claimant’s burden to submit documentation supporting the reasonableness and necessity of the fees and costs incurred. Absent support, the fees and costs cannot be awarded. Here, claimants’ counsel was given an opportunity to submit post-hearing briefing to the arbitrator, at which time the court noted it would have been appropriate for counsel to request and provide support for his attorneys’ fees and costs. Given counsel’s inexplicable failure to do so, the court found the post hoc request for the court to modify the award to include such fees and costs was foreclosed by the FAA. As such, the request to modify the award was denied.

Chen v. Kyoto Sushi, Inc., No. 2:15-cv-07398 (E.D.N.Y. Apr. 1, 2021)

Court Finds Pre-Hearing Nonparty Deposition Subpoenas Permitted by FAA, and Rule 45 Territorial Limit Not a Bar for Virtual Deposition

March 16, 2021 by Alex Silverman

Nonparty Lawrence Satz received an arbitral subpoena in a proceeding between International Seaway Trading Corp. and Target Corp. Satz was a former owner of Seaway. The subpoena — the second issued to Satz during the proceeding — sought documents and virtual deposition testimony about certain issues he had refused to discuss at his first deposition. Before the second deposition, Satz moved to quash the subpoena on three grounds, each of which was rejected.

First, he claimed the arbitrator lacked the authority to issue a nonparty deposition subpoena before the arbitration hearing. In In re Security Life Insurance Company of America, 228 F.3d 865 (8th Cir. 2000), the Eighth Circuit held that section 7 of the Federal Arbitration Act implicitly authorizes arbitrators to issue pre-hearing document subpoenas, but did not reach the issue of pre-hearing deposition subpoenas. Despite decisions from various other circuit courts of appeal that section 7 does not authorize pre-hearing nonparty discovery, including cases expressly rejecting Security Life, the Minnesota district court declined to follow those other cases. Instead, it held that under Security Life, arbitrators are authorized to issue pre-hearing deposition subpoenas, finding no meaningful distinction between the reasoning for allowing such subpoenas for written discovery, but not depositions. Satz next argued the subpoena is unenforceable because it did not comply with the 100-mile territorial limit imposed by Federal Rule of Civil Procedure 45. But the court was unpersuaded, finding Rule 45 now allows service of subpoenas anywhere in the United States and, perhaps more importantly, that the distance limitation for holding the deposition does not bar enforcement of a subpoena for a virtual deposition that Satz could attend from home. Finally, the court rejected Satz’s relevance and burden arguments, noting both issues were already considered by the arbitrator and that the court would not second-guess the arbitrator’s conclusions.

International Seaway Trading Corp. v. Target Corp., No. 0:20-mc-00086 (D. Minn. Feb. 22, 2021).

Tenth Circuit Agrees Arbitration Award Issued Absent an Arbitration Agreement Was a “Farce,” Orders Sanctions Against Pro Se Petitioner

February 22, 2021 by Alex Silverman

Petitioner James Wicker appealed an order dismissing his application to confirm a $2 million arbitration award issued in his favor against respondents Bayview Loan Services LLC and U.S. Bank, N.A. Wicker obtained the award after the respondents failed to respond to his “binding self-executing irrevocable” counteroffer containing certain “scattered and incoherent” references to arbitration. The district court dismissed Wicker’s effort to confirm the award, finding the arbitration was “bogus” and the award was a “farce” absent an agreement to arbitrate. On appeal, Wicker claimed the district court usurped the arbitrator’s authority to interpret the agreement between the parties. The Tenth Circuit disagreed, finding that Wicker ignored case law establishing that it is for the court, in the first instance, to decide whether the parties agreed to arbitrate. The court also emphasized Wicker’s failure to cite authority that failure to respond to a counteroffer created a contract. As such, the district court’s order was affirmed. Moreover, although Wicker was pro se, finding his appeal was frivolous, the Tenth Circuit granted the respondents’ motion for sanctions and ordered Wicker to pay double appellate costs.

Wicker v. Bayview Loan Services, LLC, No. 19-4169 (10th Cir. Jan. 27, 2021).

New York Federal Court Grants $12M Foreign Arbitration Award Under New York Convention

February 3, 2021 by Alex Silverman

The petitioner sought confirmation of an international arbitration award issued in its favor by the Society of Maritime Arbitrators. The petitioner and the respondent had entered into an agreement for the petitioner to charter a vessel to transport iron ore. The respondent objected to the arbitration in part on the ground that the parties’ agreement was procured by fraud and therefore void. The panel ruled in the petitioner’s favor and issued a final award of more than $12 million plus interest, finding no evidence of fraud or corruption. In opposition to the motion to confirm the award, the respondent argued that the panel lacked jurisdiction to arbitrate the dispute; that the award violated article V.1(c) of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention); and that the award violated article V.2(b) of the New York Convention because it was procured by corruption and thus enforcement would be against U.S. public policy.

Article V of the New York Convention sets forth seven grounds upon which a court may refuse to enforce a foreign arbitration award. The court acknowledged that district courts are “strictly limited” to those seven defenses in determining whether to confirm a foreign award. The party opposing enforcement bears the “heavy” burden of proving that one of the seven defenses applies. Here, having found that the panel had jurisdiction to decide a threshold arbitrability issue, the court found that the respondent failed to establish any basis to disturb the award pursuant to the New York Convention. The court thus granted the petition to confirm. In addition, given the respondent’s failure to comply with the award or otherwise put forth a good faith basis for not complying, the court also granted the petitioner’s request for attorneys’ fees and costs arising from the proceeding.

Commodities & Minerals Enterprise, Ltd. v. CVG Ferrominera Orinoco, C.A., No. 1:19-cv-11654 (S.D.N.Y. Dec. 10, 2020).