Benjamin Stearns

In a case where both the plaintiffs and the defendant agreed the matter should be arbitrated, the Southern District of Ohio refused to compel arbitration and denied the plaintiffs’ motion for the appointment of arbitrators. The parties’ contract provided for arbitration before the American Arbitration Association, but the AAA declined to administer the arbitration because the defendant “failed to comply with the AAA’s policies regarding consumer claims.” Both parties were amenable to private arbitrations, but they could not agree whether the arbitration should be conducted individually or as one consolidated arbitration. As a result, the plaintiffs argued that the parties had reached an impasse and requested that the court either compel arbitration or appoint arbitrators.

The court first held that a party may not seek to compel arbitration under Section 4 of the FAA “where there has been no refusal to arbitrate.” “A party has ‘refused to arbitrate’ within the meaning of Section 4 if it commences litigation or is ordered to arbitrate the dispute by the relevant arbitral authority and it fails to do so.” The court denied the motion to compel arbitration under Section 4 because it found that the defendant had not unequivocally refused to arbitrate. Rather, the defendant expressly acknowledged the agreement to arbitrate, and the parties were working together to select arbitrators, but had so far failed to agree. Although the parties had not been able to agree on arbitrators for more than a year, the court found that some of this delay was attributable to the plaintiffs’ change in position regarding consolidated arbitration.

With regard to the plaintiffs’ motion for appointment of arbitrators, the court noted that the FAA “expressly favors the selection of arbitrators by parties rather than courts[, however,] Congress recognized that judicial intervention may be required in certain circumstances.” Section 5 of the FAA provides for the appointment of arbitrators “if for any [ ] reason there shall be a lapse in the naming of an arbitrator.” For purposes of Section 5, a “lapse” has been defined as “a lapse in time in the naming of the arbitrator … or some other mechanical breakdown in the arbitrator selection process.” Several courts have found such a “lapse” to have occurred where the parties have deadlocked with regard to the appointment of arbitrators or the process pursuant to which the appointments should be made. Here, despite the one-year delay, the court found that no deadlock had occurred, as the parties both agreed that they were amenable to private arbitration and the names of specific arbitrators had been exchanged. In addition, the AAA had informed the parties that it would consider accepting the arbitration if the defendant took certain steps.

As a result, the court found that it lacked jurisdiction under Section 4 to compel arbitration and under Section 5 to appoint arbitrators, and dismissed the action without prejudice.

Allen v. Horter Investment Management, LLC, Case No. 1:20-cv-11 (S.D. Ohio Sept. 30, 2020).

The dispute involved Telemicro’s breach of a contract with Major League Baseball Properties for the rights to broadcast MLB games in the Dominican Republic. Telemicro failed to make payments under the contract, prompting MLB to terminate the contract and demand arbitration. In response to the arbitration demand, Telemicro sought a stay of the arbitration proceedings in a New York state court, and failed to submit an arbitrator ranking list to the American Arbitration Association. As a result, the AAA deemed Telemicro to have accepted the entire list of proposed arbitrators and made an appointment from it. Shortly thereafter, Telemicro’s request for a stay was denied. After a six-month proceeding, the arbitrator issued a final award to MLB, including an award for attorneys’ fees.

On the motion to confirm the award before the Southern District of New York, Telemicro argued that the decision to proceed with the appointment of an arbitrator despite the pendency of its motion for stay in New York state court constituted a due process violation. Telemicro argued that it would not have been able to participate in the selection of the arbitrator without waiving its challenge to the jurisdiction of the arbitration. The court was not persuaded, noting that Telemicro failed to explain why it waited until the last day the list was due to seek a stay, and further that Telemicro took no action to challenge the appointment of the arbitrator within the arbitration process after the stay was denied. Furthermore, MLB made “a credible argument” that Telemicro’s submission of the list of potential arbitrators would not have waived its right to seek a stay.

Telemicro also argued that the arbitrator manifestly disregarded the law when making the award of attorney’s fees. The parties’ contract, however, stated that Telemicro would “reimburse MLB for any attorney’s fees and all costs and other expenses incurred by MLB in connection with the breach” of the agreement. Lastly, the court found Telemicro’s argument that the arbitrator acted in manifest disregard of the law because he viewed the MLB’s invoices in camera to be baseless, stating that such reviews are frequently performed in camera.

Major League Baseball Props., Inc. v. Corporacion de Television y Microonda Rafa, S.A., Case No. 1:19-cv-8669-MKV (S.D.N.Y. Sept. 14, 2020).