Alex Silverman

The Southern District of New York declared that plaintiff Monjasa A/S was not bound by an arbitration agreement to which neither it nor the defendant was a party. The case stems from a fuel delivery contract between two non-parties, Monjasa Lda and Angola de Navegacao Lda (ANNA). The contract called for Monjasa Lda to supply fuel to a ship known as the BBC Scotland. Monjasa Lda and the plaintiff are wholly separate subsidiaries of Monjasa Group. The defendant underwrote an insurance policy covering the BBC Scotland and its owner. The dispute arose after the BBC Scotland collided with and damaged the Golden Oak, a fuel tanker that Monjasa Lda arranged under the fuel contract, forcing Monjasa Lda to send a different tanker – the Duzgit Venture – to complete the delivery.

Subsequently, various parties – excluding the plaintiff – engaged in settlement discussions regarding the damage to the Golden Oak. The defendant, as insurer for the BBC Scotland parties, ultimately funded the settlement, after which it sent an arbitration demand to the plaintiff seeking reimbursement. According to the defendant, the plaintiff was liable for the settlement and subject to arbitration based on the general Monjasa Group terms and conditions incorporated by reference in the Monjasa Lda/ANNA contract. As support, the defendant cited a reference on the fuel delivery receipt issued by the Duzgit Venture stating that the sale was “governed by terms and conditions between Vessel and Monjasa A/S, acting as principal.” The plaintiff responded by filing this action.

Because there was no dispute that the plaintiff and the defendant were not parties to the contract between Monjasa Lda and ANNA, the district court found that the plaintiff could only be bound by its terms under agency principles. In that regard, the court ruled that the defendant failed to prove that Monjasa Lda was acting with actual or apparent authority to bind the plaintiff when it contracted with ANNA. The court also found that it was the defendant’s burden to prove that it was entitled to enforce a contract to which it was not a party. Although acting as subrogee of the BBC Scotland’s owner, the court found no connection between the owner of the BBC Scotland and the fuel delivery contract. Further, the court held that no reasonable fact-finder could conclude that the owner of the BBC Scotland was a third-party beneficiary of the contract. Accordingly, the court granted the plaintiff’s motion for summary judgment and denied the defendant’s cross-motion to compel arbitration, finding that the defendant had no basis to invoke the arbitration clause in the first instance.

Monjasa A/S v. Mund & Fester GmbH & Co. KG, No. 1:19-cv-06143 (S.D.N.Y. Aug. 6, 2020).

Standard Security Life Insurance Company of New York and Madison National Life Insurance Co. entered into an administrative services agreement with FCE Benefit Administrators Inc. under which FCE administered insurance policies underwritten by the insurers. After several years, the insurers terminated the agreement and invoked its arbitration clause. Phase I of the arbitration ended with the panel issuing a partial final award to the insurers of more than $5 million. The panel denied all the parties’ remaining claims at the conclusion of phase II. A federal district court in Illinois later confirmed both awards.

On appeal, FCE claimed the phase I award should not have been confirmed for three reasons, each of which was rejected. First, it argued that the phase II award superseded the phase I award and that the phase I award was therefore not confirmable. The Seventh Circuit disagreed, explaining that the panel deliberately bifurcated the arbitration to decide discrete claims in each phase, thus plainly intending the phase I award to be final and confirmable as to all phase I claims. Second, FCE argued that the panel exceeded its authority by deciding the insurers’ indemnification claims, which FCE claimed were expressly carved out of the arbitration process. While the court disagreed with FCE’s reading of the relevant contract provisions, it also held that FCE waived the objection in any event, having only asserted it after the panel issued the phase I award. Finally, the court rejected the contention that the panel exceeded its authority by awarding amounts labeled on the phase I award as “embezzlement.” “Despite the dramatic label,” the court ruled, the claim itself was no more than a “garden-variety assertion that FCE took excessive and unearned administrative fees from the Insurers.” Because FCE had notice of and attempted to defend against the assertion during phase I of the arbitration, the court found the argument to be meritless. As such, the district court order confirming the phase I and II awards was affirmed.

Standard Security Life Insurance Company of New York v. FCE Benefit Administrators, Inc., No. 19-2336 (7th Cir. July 28, 2020).

The New Jersey Supreme Court issued a combined opinion in two cases arising from arbitration agreements in employment contracts. The plaintiffs in the respective cases claimed they fell within section 1 of the Federal Arbitration Act (FAA), also known as the “exemption clause,” and thus that their disputes were not subject to arbitration. The question in both cases was whether the disputed arbitration clauses would still be enforceable under the New Jersey Arbitration Act (NJAA), even assuming section 1 of the FAA applied. The court answered in the affirmative, thereby reversing the appellate decision in one case and affirming it in the other.

Section 1 of the FAA states that the FAA shall not “apply to contracts of employment of seamen, railroad employees, or any other class of workers engaged in foreign or interstate commerce.” Citing a 2019 decision by the U.S. Supreme Court, the court held that section 1 applies only to transportation workers engaged in interstate commerce. It was undisputed that the plaintiffs in one of the subject cases were exempt. The court remanded the other case for a determination whether the plaintiffs fell within section 1. Nonetheless, the court explained that, absent preemption, New Jersey arbitration agreements have been automatically subject to the NJAA since 2003. The court held that the NJAA is nearly identical to the FAA and incorporates the same policies strongly favoring arbitration. The court therefore rejected the notion that the arbitration clauses at issue were not (or otherwise could not be) governed by the NJAA merely because they did not expressly invoke the statute. Moreover, having determined that the NJAA is not preempted by the FAA, the court ruled that the NJAA may apply to arbitration agreements even if parties to the agreements are exempt from arbitration under section 1 of the FAA.

Arafa v. Health Express Corp., No. 083174, and Colon v. Strategic Delivery Solutions, LLC, No. 083154 (N.J. July 14, 2020).

In February 2019, the U.S. District Court for the Southern District of New York denied petitioner Hanwei Guo’s discovery application after determining that the China International Economic and Trade Arbitration Commission (CIETAC) did not qualify as a “foreign or international tribunal” under 28 U.S.C. § 1782(a). That ruling – blogged about here – was based primarily on the Second Circuit’s decision in National Broadcasting Co. (NBC). On appeal, Guo argued that NBC was no longer good law, having been overruled or otherwise undermined by the U.S. Supreme Court’s decision in Intel Corp. While acknowledging that courts following Intel have reached diverging conclusions on the issue of whether a private foreign arbitration falls within section 1782(a), the Second Circuit rejected the notion that Intel undermined NBC. Rather, the court declared that NBC remains binding in the Second Circuit.

Turning to the merits of the appeal, the Second Circuit agreed with the district court that CIETAC arbitration is a private international commercial arbitration, thus falling outside the scope of section 1782(a)’s “foreign or international tribunal” requirement. The court clarified that in determining whether arbitration is a “foreign or international tribunal,” the inquiry does not turn on the governmental or nongovernmental origins of the entity in question, but whether the body possesses the functional attributes most commonly associated with private arbitration. Considering the relevant factors, the functional attributes of CIETAC arbitrations were found to clearly fall outside the scope of the tribunals contemplated by section 1782. As such, the Second Circuit affirmed the district court order denying Guo’s petition.

In re Application of Hanwei Guo, No. 19-781 (2d Cir. July 8, 2020).