Alex Silverman

Second Circuit Affirms Arbitration Award of Over $2M in Fees to Prevailing Party

November 5, 2020 by Alex Silverman

EB Safe commenced arbitration proceedings against Mark Hurley arising out of a business dispute. The arbitrators ruled in Hurley’s favor and awarded him expenses and attorneys’ fees totaling more than $2 million. A New York district court subsequently denied EB Safe’s petition to vacate the award and granted Hurley’s cross-petition to confirm. On appeal, EB Safe argued the award should have been vacated because it was in manifest disregard of the law and/or because Hurley procured the award by fraud through committing perjury at the arbitration.

The Second Circuit disagreed in both respects, noting first that the “manifest disregard of the law” standard is limited only to the “exceedingly rare instances where some egregious impropriety on the part of the arbitrators is apparent.” EB Safe claimed that in deciding Hurley’s fee request, the arbitrators failed to apply the “reasonableness” standard required by Delaware law. But the court found no basis for the argument in the record, and thus found it was properly rejected by the district court. In addition, despite inconsistencies in Hurley’s arbitration testimony, the court found EB Safe failed to meet the burden for vacating an award purportedly procured by fraud. Because the inconsistencies could have been equally attributable to confusion, mistake, or faulty memory, the court found EB Safe failed to show clear proof of “willful intent to provide false testimony.” As such, the Second Circuit affirmed the district court order in its entirety.

EB Safe, LLC v. Hurley, 19-cv-3859 (2d Cir. Oct. 20, 2020)

Ninth Circuit Affirms That Uber Driver Not Engaged in “Foreign or Interstate Commerce” for Purposes of Exemption to FAA

October 15, 2020 by Alex Silverman

The Ninth Circuit denied a petition seeking to vacate an order compelling arbitration of an Uber driver’s putative class action. The district court held that rideshare drivers who pick up and drop off passengers at airports did not fall within an exemption in the Federal Arbitration Act (FAA) for workers engaged in foreign or interstate commerce, and therefore the petitioner may be judicially compelled to arbitrate in accordance with the terms of his employment contract. The Ninth Circuit affirmed, finding the decision was not clearly erroneous as a matter of law.

Section 1 of the FAA provides that arbitration clauses in “contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce” are “exempt” from the FAA’s coverage. In response to Uber’s motion to compel arbitration, the petitioner argued that he drives passengers engaged in interstate travel to and from airports, and thus qualifies for the exemption. The Ninth Circuit has interpreted section 1 as applying only to employees who “actually transport people or goods in interstate commerce,” although the court acknowledged that several recent federal court decisions have interpreted the clause more broadly. Notwithstanding the tension between those decisions and the district court’s ruling here, the court declined to find the district court’s decision was “clearly erroneous as a matter of law.” Analogizing the petitioner’s employment to that of local taxicab services, the court found that the petitioner never crossed state lines during his work, and cited no precedent holding that rideshare drivers, as a class, are “engaged in foreign or interstate commerce.” As such, the petition for a writ of mandamus was denied.

In re William Grice, No. 20-70780 (9th Cir. Sept. 4, 2020)

Washington Supreme Court Declines To Intervene in Ongoing Arbitration, Finding Judicial Authority Under FAA Limited To “Gateway” Disputes and Review of Final Awards

October 13, 2020 by Alex Silverman

Evette Burgess and Lithia Motors were arbitrating an employment dispute when, during the proceedings, Burgess filed a motion with the court seeking to terminate the arbitration and to rescind the arbitration agreement. The motion alleged that Lithia breached the agreement by failing to comply with discovery deadlines and that the arbitrator did so by failing to enforce applicable procedural rules. The superior court denied the motion for lack of jurisdiction and certified the issue to the Supreme Court of Washington. The Court affirmed the order, concluding that judicial review under the Federal Arbitration Act (FAA) is limited to disputes over “gateway” issues (i.e., enforceability of the arbitration clause in the first instance), and to the review of final awards.

Burgess argued that interlocutory challenges during arbitration proceedings is permitted by section 2 of the FAA. Lithia disagreed, arguing judicial review under the FAA is limited to the “bookends” of the arbitration: initial enforceability and review of the final award. The Court noted that the majority of federal circuit courts that have addressed the issue have agreed with Lithia, and that Burgess cited no case in which a court provided relief once the arbitration commenced. The Court also agreed with Lithia in this regard, explaining that sections 2, 3, and 4 of the FAA authorize courts to decide gateway arbitrability disputes, while sections 9, 10, and 11 allow courts to confirm, vacate, modify, or correct a final arbitration award at the conclusion of proceedings. The Court relied on a Sixth Circuit decision involving similar facts, where the court found it significant that the FAA is silent on judicial review between gateway disputes and review of final awards. Finding other circuit courts have likewise interpreted this silence as precluding interlocutory review, the Court affirmed the superior court decision declining to intervene and rescind the arbitration agreement while the subject arbitration was ongoing.

Evette Burgess v. Lithia Motors, Inc., et al., No. 98083-7 (Wash. Sept. 3, 2020)

Georgia Supreme Court Finds Mandatory Arbitration Clause in Law Firm Engagement Agreement Is Neither Unconscionable nor Void as Against State Public Policy

September 24, 2020 by Alex Silverman

The plaintiff sued its former lawyer and law firm for legal malpractice. The defendants moved to dismiss and compel arbitration based on a mandatory arbitration clause in the parties’ engagement agreement. The trial court denied the motion, finding the arbitration clause was unconscionable, and thus unenforceable, having been entered into in violation of the Georgia Rules of Professional Conduct (GRPC). The appellate court reversed, finding the clause was neither void as against public policy nor unconscionable. Plaintiff appealed to the Supreme Court of Georgia, which granted review of two questions: (1) whether the GRPC requires an attorney to obtain the informed consent of his/her client before including a clause mandating arbitration of legal malpractice claims in the parties’ engagement agreement; and if so, (2) whether failing to obtain that consent renders such a clause unenforceable under Georgia law.

Substantively addressing the second question only, the Court affirmed the decision of the appellate court, finding the first question need not be answered. Specifically, the Court held, even assuming the failure to obtain a prospective client’s informed consent does violate the GRPC, the arbitration clause at issue here would still not be unenforceable. The Court rejected the argument that clauses of this kind violate state public policy, noting that Georgia has a clear public policy in favor of arbitration, and that “[t]here is nothing about attorney-client contracts in general that takes them outside this policy and makes mandatory arbitration of disputes arising under them illegal.” The Court also found Georgia does not have a categorical policy against mandating arbitration of legal malpractice claims. Rather, and contrary to the plaintiff’s argument, the Court held that a contract is void as against public policy, and thus unenforceable, where the agreement itself effectuates illegality, not because the process of entering the contract was allegedly improper. Thus, because the arbitration clause at issue would still be lawful even if the defendants had complied with the GRPC, the Court found the clause is not void as against public policy. In addition, based on the limited record before it, the Court found no basis to conclude the arbitration clause at issue is either procedurally or substantively unconscionable.

Innovative Images, LLC v. James Darren Summerville, et al., Case No. S19G1026 (Ga. Sept. 8, 2020)

Federal Court Confirms $112 Million Foreign Arbitral Award Against Ukraine, Finding No Arbitrator Impartiality

September 22, 2020 by Alex Silverman

Pao Tatneft filed suit in Washington, D.C., district court seeking to enforce a $112 million foreign arbitral award entered in its favor against the nation of Ukraine. Confirmation was sought pursuant to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards, also known as the “New York Convention.”

Ukraine argued against confirmation of the award on the grounds that the arbitration panel was not impartial, and that confirmation would be contrary to U.S. public policy. Regarding impartiality, Ukraine claimed the panel’s neutral arbitrator was, in fact, not neutral, having failed to disclose that he accepted an offer from Pao Tatneft’s law firm to serve as an arbitrator in a wholly separate arbitration in which he would earn upwards of $300,000. The parties disputed the standard by which to assess any alleged impartiality. Ukraine argued that the less stringent “evident partiality” standard set forth in Section 10(a)(2) of the Federal Arbitration Act applied. Pao Tatneft argued that Article V of the New York Convention contained the only grounds upon which the court could refuse to enforce the award. The court agreed with Pao Tatneft, but found Ukraine failed to meet its burden under both standards in any event. Ukraine argued alternatively that the award should not be confirmed based on U.S. public policy, but these claims were found to be speculative and/or factually unsupported. As such, the court granted Pao Tatneft’s petition to confirm the award and left the total amount payable after interest for additional briefing.

Pao Tatneft v. Ukraine, Case No. 17-cv-00582 (D.D.C Aug. 24, 2020)